Weekly Forex Analysis September 9 - 13

Stock indices rally

Although the risk appetite was hit hard by geopolitical concerns at the beginning of the past week, financial market players discovered enough reasons to change the sentiment and continue purchasing high-yield assets including equities.

As a result, U.S. stock indices had found a mid-week bottom on Tuesday, September 3, reversing the price action and rallying throughout three days in a row. The S&P 500 benchmark appreciated 2.44% on a weekly basis and charted the fourth highest weekly close on record. The bulls halted the buying pressure just 20 points shy of the psychological round-figure target of 3000 points, and just 50 points below the all-time high. Tech-heavy NASDAQ had a similar performance, adding +2.50% to its value (7862.5 points weekly close rate), while the Dow Jones Industrial Average index had a more modest achievement of +2.02%.

German DAX 30 and French CAC 40 indices performed in the same bullish manner, gaining strength of +2.03% and +2.25%, respectively. Asian stock indices rallied led by Japan’s NIKKEI 225, which added +2.39% to its value.

The U.S. dollar index dropped

After testing 99.37, the level never seen since May 2017, DXY was sold-off aggressively amid risk-on sentiment in the financial markets, which led to an additional demand for high-yield currencies. The index measuring the greenback’s strength versus six major currencies had lost -0.8% of its rate this past week. The U.S. dollar failed to hold mid-week gains versus Euro (+0.34%), British Pound (+1.01%), Swiss Franc (+0.24%) and all commodity currencies including the Loonie (USD/CAD -1.06%), Aussie (AUD/USD +1.67%) and Kiwi (+1.84%).

The only exception was the Japanese yen (-0.60%), which softened across the board, reflecting the rally in global equities and the spike in the risk appetite. What’s more, emerging markets currencies were the strongest assets in the foreign exchange market as traders were rushing to jump into the high-yield asset classes. For instance, USD/ZAR dropped -2.50% to 14.80 rands per dollar from 15.29 (487 pips!), and USD/MXN plunged -2.64% to 19.53 pesos per dollar from 20.06 (530 pips!).

Such a sharp change in the market sentiment might have the only explanation - the active Autumn season started, investors and traders came back to work, and money needs to be invested to keep working for profits. Given the fact that the rally happened in the first week of September, the rest of the year promises to be hot.

Commodities split

The price of gold, as well as other precious metals, including silver and palladium, reflected the overall risk-on appetite. The yellow metal declined for the second week in a row, although the bulls had a failed attempt to re-test multi-year highs above $1550 per ounce. The high volatility forced the price of gold to change direction several times throughout this past week, and the rate finished the trading week at $1506.62 per ounce, losing -0.90%.

Silver charted a huge upside whipsaw on the weekly timeframe (-1.05% to $18.18 per ounce), having an enormous range of 1000 pips in one single trading week. The bulls had a failed attempt to lift silver prices to the highest rate never seen in three years, but they triggered a huge volume of postponed sell-orders, which added the selling pressure.

In contrast, Platinum managed to hold some gains, increasing its value to $947.50 per ounce (+1.83%), but also had a long upper shadow on the weekly candlestick. WTI Crude oil price strengthened +2.86%, charting the highest close rate above $56.50 per barrel in eight straight weeks. Brent Crude oil rallied +4.40% to $61.66 per barrel.

EUR/USD weekly forecast: Neutral

Although Euro tested the lowest rate versus the U.S. dollar since May 2017, the technical sentiment is rather neutral than bearish. The weekly candlestick had two equal shadows on both sides, which points to the market’s indecisiveness. After testing 1.0926, EUR/USD surged 160 pips in three days, and tried the water above 1.1080 resistance, triggering postponed sell-orders placed there. However, the bears did not print any significant achievement on Thursday and Friday, leaving questions about further price action in the near term.

The technical outlook is mainly bearish as EUR/USD is still inside the asymmetric descending triangle. But the current rate is above the median dashed line, which was built after connecting local top on March 21 and local bottom charted in mid-August. Awesome Oscillator is still in the negative territory but its histogram started narrowing the negative surplus and turned green, in the same way as it happened during the recent bullish retracement started on August 1. That upside swing had a distance of 250 pips counting from the bottom, and it could repeat itself this September, especially in the light of weak demand for the U.S. dollar across the board.

Commodity Channel Index (21-days period) went off the oversold zone, suggesting that the bearish momentum is getting exhausted. The technical analysis suggests a test of the middle band of the range before a new downtrend started. Triple EMA (13, 21 and 55) represents the resistance range, and EUR/USD had already tested the green curve, although remained below the yellow one. If the bulls were able to close a day above EMA13, the upside swing might extend gains for the pair, and traders could face strong demand for the pair up until 1.1100.

Therefore, entering the market with short positions might be dangerous and too early, as EUR/USD could give more attractive levels for the sell-highs trading strategy soon. Going long on the pair would put traders into a tough position of standing against such a strong downtrend, which is also dangerous. Thus, the wait-and-see position looks more reasonable so far.

Weekly Forex Analysis September 9 - 13

WTI Crude oil weekly forecast: Bullish

The technical sentiment is about to change to positive for the black gold due to several bullish achievements printed this past week. First, the price of WTI Crude Oil failed to keep the sequence of lower lows, bouncing off a local bottom of $53.90 per barrel, the lowest close rate on September 3. Second, the oil bulls managed to lift the daily close rate above the descending trendline, which acted as the resistance since April 23 (close rates, not whipsaws). Third, 89-days exponential moving average resistance curve was breached. Fourth, 21-days Relative Strenght index is back above the 50% threshold, and it has a sequence of higher highs counting from the peak on August 13.

The 'ADX and DI' indicator has a positive surplus between -DI and +DI lines. However, the ADX mainline remains well below the threshold, reflecting the weak market momentum. The lack of significant progress on the upside is the only concern for the bulls so far. They need to gather momentum to push the WIT Crude oil price further North. A clear and sustainable breakthrough above the round-figure psychological static resistance at $60.00 per barrel could add odds for long-term bearish action. Before that happened, the black gold price could be stuck in a tight range between $52 and $56 per barrel with possible spikes to $52 and $58, respectively.

Such a trading mode suggests using the benefit of trading in both directions, selling expensive and buying cheap. However, such a trading strategy requires quite a tight stop-loss and take-profit orders, as well as comparatively short period in the market. Holding positions for too long might be dangerous also because a breakthrough could happen on both sides of the recent range. Thus, more signals are required to clarify the situation in the long run.

Weekly Forex Analysis September 9 - 13
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