A mixed bias for equities
The mixture of fundamental, macroeconomic and geopolitical factors forced equity investors to lower the trading volume and volatility this past week. One of the most anticipated events in the monetary policy space - FOMC meeting, rate decision and economic statement - did not add optimism to stock indices in the United States as traders were hoping for more stimulus from the regulator. The rate cut of 25 basis points was already priced in and there was some sort of disappointment among Wall Street players as they were counting on at least one more softening from the Federal Reserve. However, the vote-split of 7-3 forecasted an on-hold position and data dependence.
As a result of choppy trade, the S&P 500 benchmark had re-tested the weekly high rate of 3022.2 points, but reversed the action and finished the week unchanged. Tech-heavy NASDAQ (-1.02%) and blue chips from the Dow Jones Industrial Average (-0.58%) had printed losses amid the lack of buyers. Overseas stock indices had a mixed performance as well. German DAX remained flat, French CAC 40 climbed to 5690.8 points (+0.56%), rewriting this year’s high, while Japanese Nikkei 225 edged higher by 0.41%.
The U.S. dollar index gained strength
Although the interest rates differential changed in favour of high-yield currencies, the U.S. dollar index gained strength as expectations of more rate cuts by the Fed this year declined significantly. The index had a bullish performance but the distribution of the greenback’s strength was quite mixed. For instance, EUR/USD declined by half a percentage point, GBP/USD slid only -0.22%, USD/CHF failed to hold mid-week gains and closed the week with an insignificant gain of 0.08%. In contrast, USD/JPY was declining throughout the week (-0.49%) on the back of risk aversion, and the Japanese yen was the strongest major currency in the foreign exchange market. The same fundamental driver was noticed for high-yield commodity currencies such as Australian (-1.66% versus the U.S. dollar) and New Zealand (-1.84%) dollars. The last one was the weakest currency among G7 as NZD/USD renewed the lowest weekly close rate (0.6260) since June 2009. Emerging markets currencies weakened as well.
The most fascinating story of the past trading week was related to the price of oil. Terrorist attacks on Saudi Arabia refinery plants, which is one of the largest in the country, caused a sharp surge for WTI and Brent Crude prices as oil traders were shocked by a sudden drop in global daily supply by 5%. Threats of a military escalation and fears of supply issues helped WTI Crude to print the largest daily gain of 12% in 30 years. Even though the market calmed down by the end of the week, and oil prices lost early gains, the overall appreciation was impressive (+6.52%, $58.45 per barrel).
Gold led the precious metals market as the yellow metal managed to withstand the bearish retracement, holding the support level at $1483 per ounce. What’s more, the bulls went back to control the market and lifted the price of gold to $1517 per ounce (+1.86%). Silver (+3.17%) and Palladium (+2.18%) followed the safe-haven leader, while Platinum declined by -0.25% in volatile trade after regaining the previous loss.
EUR/USD weekly forecast: Bearish
Despite the multidirectional price action, EUR/USD shifted the technical sentiment to negative. The currency pair was declining to support at 1.1000 and bouncing back up to resistance at 1.1070 several times this past week. The indecisiveness was coming together with the importance of the FOMC meeting on Wednesday. Nevertheless, the bears were able to control the market and pushed the rate towards the weekly close at 1.1018, which is the second-lowest result since May 2017. It’s also worth noticing that the bullish retracements were in the ranges of previous daily candlesticks, which points to the sequence of lower lows and lower highs. The tendency remains in favour of the bears.
Technical indicators confirm the previous assumption. There is still no daily close rate above Ichimokus Base Line resistance since the bearish acceleration on August 14, while the leading span is extremely negative. Although 13-days Relative Strength Index went off the oversold territory after EUR/USD tested multi-year low at 1.0926, it failed to breach the middle line of 50%, and edged lower again, indicating strong bearish momentum. The Average Directional Index still negative surplus, while its mainline edged above the threshold, which confirms that the momentum is growing. With that in mind, there is no technical sign that the bulls might come back to control the market and lift the pair to at least 1.1100 handle. What’s more, there is a huge likelihood that the pair will re-test the local bottom, and maybe even breach it as that will be the third attempt. The downtrend could be accelerated once EUR/USD clears the defensive barrier in the range of 1.0970/50.
Traders who still do not have short positions for EUR/USD in their portfolios should consider opening them right in the market open early Monday. Bullish whipsaws and false upswings are still possible, given the importance of the psychological round-figure support at 1.10000. However, chances of getting into 1.1100 figure are comparatively low, so traders could use the sell-highs strategy in the resistance range of 1.1044/63. Going long on the pair is too dangerous as the bearish performance points to strong momentum. Mid-term targets are the same as before - 1.0926 low might cause the exchange rates bullish bounce on the back of short-squeezing and take-profit flows.
WTI Crude Oil weekly forecast: Bullish
The black gold breached the borders of the descending channel last Monday when the price of WTI Crude oil surged to $63.33 per barrel (daily and weekly high) and closed the day slightly below $62.00. After the volatility eased and the emotional impact from the events happening with the global supply calmed down, the price of oil slid back below the psychological round-figure mark of $60.00 per barrel. Although the bulls failed to proceed with the impressive rally at the end of the previous week, the technical outlook points to a bullish continuation rather than a bearish reversal.
Besides the breakthrough signal from Bollinger Bands, which should point to higher prices to be charted shortly, the depth of the retracement following the upswing gives the background to assume that the bullish rally is not over yet. The double-Bolli chart setup indicates strong bullish momentum as daily close rates did not breach the upper band of the indicator with lower deviation (green arrow). That should signal a re-test of the local top rather than a deeper retracement to the middle line support. 13-days Relative Strength Index is also in favour of such a scenario as its value climbed above the 50% threshold dividing growth from decline.
Holding long positions on WTI Crude oil seems reasonable also due to higher-lows formation. Bearish whipsaws should be used to add volume or enter the market for those traders who missed the opportunity to jump in last Monday. Shoring the black gold might be dangerous as potential stop-loss order should be placed too far from the current price, and the likelihood of a deep bearish reversal is minimal. Until daily close price remains above the Bollinger Bands upper line with the yellow background, the buying pressure should keep lifting the cost of oil. Significant support is an ascending curve with the current rate at $56.46 per barrel.