On Friday, the Australian dollar declined against the greenback, which resulted in a decline to important support levels. Will they withstand the selling pressure in the coming week?
EUR/USD
Earlier today, EUR/USD increased a bit, but despite this move, the pair remains under the green horizontal line based on the mid-August and early October lows. Therefore, it seems that today’s upswing is only an attempt to verify the Friday breakdown below this line. If this is the case, the exchange rate will extend losses and we’ll see a realization of the bearish scenario from our Forex Trading alert posted on September 25:
(…) we clearly see a potential head and shoulders formation. Therefore, if EUR/USD declines under the neckline of the pattern (the blue support line based on the previous lows), we’ll see a downward move to around 1.1596, where the size of the move will correspond to the height of the formation.
However, when we take into account a drop under the lower border of the brown rising trend channel and the broader picture of EUR/USD, we think that currency bears push the exchange rate even lower – to around 1.1508, where the size of declines will be equal to the height of trend channel.
Before we move to the next currency pair, please note what we wrote on Friday:
(…) EUR/USD declined under the green horizontal support line, which is also the neckline of a bigger head and shoulders pattern (we marked it with orange). Therefore, if the exchange rate extends losses, we may see not only the realization of the above-mentioned scenario, but also a decline to around 1.1230, where the size of the downward move will correspond to the height of this pattern. As always, we’ll keep you – our subscribers – informed should anything change.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
USD/CHF
Looking at the daily chart, we see that currency bulls pushed USD/CHF higher once again, which resulted in an increase to the 61.8% Fibonacci retracement and the upper border of the blue rising wedge, which together could pause or even stop further improvement in the coming days. Additionally, the position of the indicators suggests that reversal is just around the corner. Therefore, if we see a decline from current levels, currency bears will likely test the lower border of the formation in the following days.
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