Stock indices rebound.
Past weekend’s headlines did not add optimism to global equity investors as a U.S.-China trade war threatened to escalate the recent tensions. Monday morning was ugly for stock indices, especially in Asia. Most of the futures contracts opened with huge downside gaps after last Friday’s sell-off.
However, global politicians managed to calm the panic down and promised not to worsen the situation, coming back to negotiations. As a result, investors changed the sentiments, and the major benchmark came back to stable growth. The S&P 500 benchmark added +3.42% to its value this past week and even managed to recover most of the losses in August, finishing the month with a moderate retracement of -1.71%. The monthly close rate above 2900 points might promise another test of the all-time high value noted in July (3028.3 points). Tech-heavy NASDAQ had a similar performance, gaining +2.50% on a weekly basis, while the Dow Jones Industrial Average surged +3.81%. European and Asian stock indices followed the global leader and recovered a decent part of the recent plunge.
The U.S. dollar gained strength versus major currencies.
In contrast to global equities, the world’s reserve currency gapped with a positive tone after the past weekend. What’s more, the U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies gained +1.59% and closed the trading week at the highest level since May 2017. Swiss Franc (-1.56%), Euro (-1.38%) and the New Zealand dollar (-1.37%) were among the weakest major currencies. The British Pound had retraced back down versus the U.S. dollar as GBP/USD declined by -1.02% after two weeks of strength. The Japanese yen weakened by -0.87%, while Australian and Canadian dollars had moderate losses of -0.25% and -0.21% respectively. Emerging markets currencies were mostly soft with the only exception of South African Rand as USD/ZAR slid -0.42%.
Commodities trade with a mixed bias.
The price of gold reflected the risk-aversion flows at the beginning of the past trading week and tested the highest level since April 2013 ($1555.3 per ounce as the weekly high). However, traders were disagreed with such an early surge of the yellow metal and stepped in with heavy-volume sell-orders. As a result, the price of gold charted a long upside shadow on the weekly candlestick and closed in the red, slightly below the open price ($1520.34; -0.42%). Nonetheless, August was extremely positive for gold speculators as the price gained almost 8%. Platinum was overperforming the rest of the precious metals, adding almost 9% ($933.66 per ounce). Silver surged up to $18.37 per ounce for the first time in 28 months. WTI and Brent Crude oil prices tried to recover but failed to hold mid-week gains.
EUR/USD weekly forecast: Bearish.
The most popular currency pair in the foreign exchange market charted the largest weekly loss since May 2018 and closed the weekly candlestick at the lowest level since May 2017. What’s more, the psychological round-figure support level of 1.1000 dollars per one euro was eliminated. Euro was softening across the board starting from Monday, and the decline was accelerated on Friday as EUR/USD dropped 67 pips in one single day. Before plunging, the pair tested resistance above 1.1150 on Monday open hours, however, such a high level might be forgotten for quite a while as the bears controlled the market throughout five days in a row. Some retail traders took profits in the last two trading hours, and EUR/USD recovered 30 pips in the exchange rate, but the overall technical sentiment remained extremely bearish on major timeframes.
During such active price actions, trend indicators work best. As the daily chart below shows, EUR/USD started the latest downside swing exactly from a failed test of the Ichimoku Base Line resistance curve. Before that, there was a failed test of the bottom band of the Ichimoku Cloud (two red arrows on the chart). All of the trend conditions and technical outlooks are in favour of the bearish continuation. The leading span had increased the negative surplus, all lines are in the right order to proceed with the downtrend. The nearest resistance is a descending Conversion Line, which currently comes at around 1.1064. All of the oscillators are extremely oversold thus overbought levels should be shifted down. A bullish retracement might happen but it would be short-lived and quite limited as the bears are extremely strong.
The trading strategy should be based on a sell-highs approach. A healthy retracement is needed to continue the trend, however, every bullish spike should be considered as an entry opportunity. An intraday analysis suggests resistance levels at 1.1027 (the lowest rate charted on August 1), 1.1050 (a round-figure static line and the bottom on August 23) and 1.1080 (two consecutive daily close rates on August 19 and 22). All of those pivot points should be monitored in terms of intraday trading signals using short-term oscillators for overbought whipsaws. When it comes to the nearest targets, EUR/USD might drop to 1.0924 and 1.0876 in extensions. Both those marks were noticed during the consolidation period in May 2017.
WTI Crude weekly forecast: Bearish.
The descending trendline we pointed out in the previous forecast acted as resistance again. WTI Crude Oil price was slowly climbing throughout four trading days this past week until the sellers stepped in at attractive prices, refreshing short positions in their portfolios. As a result, oil price tested a weekly high at V.86 per barrel and dropped back to $55.00 support, losing almost 3% of the value in one single day last Friday.
The general downtrend is still in play as the technical sentiment remains bearish. ADX and DI indicator’s mainline is far below the threshold, underlining the weak momentum. In the past week, 89-days exponential moving average confirmed the resistance range as the bullish action was limited exactly by the curve. Commodity channel index printed a strong sell-signal last Thursday after reaching the overbought territory and bouncing back down. As long as the oil price did not go far from the EMA89 and CCI has still room to go south, the bearish trade should continue in the week ahead. The large triangle formation points to the baseline at $51.06, which should determine further trend direction in the long run. So far, the test of the static horizontal support (blue line on the chart below) looks imminent.
Those traders who still hold short positions should keep doing so until the bottom of the triangle reached. Those who missed another entry opportunity this past week should focus on seeking entry levels during bullish retracements. The overall strategy remains the same as EMA89 and the descending trendline should remain in focus of the bears. CCI indicator should play a secondary role in terms of pointing an attractive entry-level when it tests the overbought zone. An intermediate level to consider taking profits might be $53.73, the close price charted on August 26.