AUD/USD – Invalidation of Breakdown

Earlier today, the U.S. Commerce Department showed that total durable goods orders dropped 3.4% last month, missing expectations for a gain of 0.5%, while core durable goods orders (without volatile transportation items) dropped by 0.8% in the previous month, disappointing forecasts for a 0.6% gain. Thanks to these numbers, AUD/USD extended gains, invalidating a breakdown below an important support level. Is it enough to trigger further rally?

In our opinion, the following forex trading positions are justified - summary:

EUR/USD: none
GBP/USD: none
USD/JPY: none
USD/CAD: none
USD/CHF: none
AUD/USD: none

EUR/USD

As you see on the above charts EUR/USD extended gains, which means that what we wrote yesterday is up-to-date:

Quoting our Friday’s Forex Trading Alert:

(…) EUR/USD rebounded sharply, invalidating the breakdown under the 61.8% Fibonacci retracement. (…) this is a bullish signal, which suggests higher values of the exchange rate (especially when we factor in the current position of the indictors - they are close to generating buy signals,) in the coming days. If this is the case, the initial upside target would be around 1.1443, where the 23.6% Fibonacci retracement based on the Dec 16-Jan 26 declines is.

Very short-term outlook: bullish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.

GBP/USD

Looking at the above chart, we see that GBP/USD moved sharply higher earlier this week, which resulted in an invalidation of the breakdown below the lower border of the consolidation (marked with blue). Although this is a positive signal, we should keep in mind that the exchange rate is still trading under the previously-broken long-term green resistance line, which keeps gains in check.

Having said that, let’s take a closer look at the daily chart.

The first thing that catches the eye on the above chart is an invalidation of the breakdown below the medium-term green support/resistance line. Although this is a bullish signal, we saw similar price action several times in recent weeks. In all previous cases, currency bulls weren’t strong enough to push the pair higher, which triggered pullbacks. Taking this fact into account, and combining it with the medium-term picture, we think that as long as the exchange rate remains under the long-term resistance line (marked on the weekly chart) and the gap between the Jan 2 low and Jan 4 high is open further rally is questionable and another pullback to the medium-term green support/resistance line in the coming days is likely.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.

AUD/USD

Quoting our last commentary on this currency pair:

(…) the exchange rate slipped to the previously-broken upper line of the declining trend channel (marked with brown on the daily chart). Taking this fact into account, and combining it with the current position of the indicators (they are oversold), it seems that we’ll see a pause or rebound from here in the coming day(s)

On the daily chart, we see that the situation developed in line with the above-mentioned scenario and AUD/USD bounced off the previously-broken upper line of the declining trend channel. With this upward move, the exchange rate invalidated also the breakdown under the 61.8% Fibonacci retracement (seen on the weekly chart). All the above provides us with bullish implications, suggesting further improvement and an increase to around the previous Jan lows (marked with orange).

Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.