U.S. and global stock indices rallied
After a dramatically bearish start of the previous week, U.S. stock indices reversed and went into positive territory. The previous trading week was extremely volatile as initially, sellers were in control of the major benchmark on the back of geopolitical and economic concerns. The worst report impacting the sharp sell-off in equities was Producer Price Index in the United States, which contracted for the first time in four years. Investors comprehended that news as a signal for the Federal Reserve to keep easing the financial conditions and soften the monetary policy. Thus, talks about possible recession were renewed.
However, the good news came from the U.S. - China negotiations as two largest economies reportedly noticed a strong willingness to collaborate on a trade deal, cancel mutual import tariffs and buy more goods from each other. As a result, the S&P 500 benchmark soared to 2968.8 points (+0.69%) after printing the weekly low of 2879.8 (-2.38%). A similar action was noticed for both tech-heavy NASDAQ and blue chips DJIA, which gained strength up to 7844.4 (+1.17%) and 26932.5 (+1.74%), respectively. Overseas indices rallied much more than that: German DAX 30 +4.15%, French CAC 40 +3.23%, Japanese Nikkei 225 +1.82%.
The U.S. dollar weakened
Thanks to the risk-on trading mode across the board, the world’s reserve currency - U.S. dollar - struggled from weakness versus almost all major peers. The U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies dropped -0.51% to a four-week low of 98.33 points. EUR/USD charted an uptrend up to 1.1038 (weekly close rate; +0.55%). That was the largest weekly gain of the most popular currency pair since the beginning of August. The British pound had best two days since the Brexit vote in summer 2016 as GBP/USD added +2.56% to the exchange rate on a weekly basis, soaring to 1.2649 (weekly close rate). At the same time, the bottom of the weekly range was noted at 1.2195, while the top was charted above 1.2700. All of the volatility was related to Brexit headlines as the U.K. and E.U. announced a possible deal for the soft divorce outcome.
The Japanese yen, in contrast, weakened versus the greenback, reflecting the overall risk-sentiment. USD/JPY surged +1.41% and tested the long-term resistance level at 108.50 yen per dollar. The Swiss Franc was almost steady as USD/CHF added only +0.14% to the exchange rate. Commodity currencies followed the general trend: AUD/USD +0.34%, NZD/USD +0.31%, USD/CAD -0.82%. The Loonie appreciated strong economic results in Canada. Emerging markets currencies gained strength as well.
Gold retraced, oil jumped
While safe-haven assets were sold-off this past week, the price of gold did not find support below $1500 handle. The yellow metal had a couple of attempts to rise above the psychological threshold, but the bulls failed to hold gains. As a result, the price of gold declined by -1.06% to $1488.67 per ounce. Silver also had a volatile week with a wide range of trading between $17.27 and $17.85, but the second precious metal remained pat by the end of the week. Palladium added +2% to the price, continuing the long-term uptrend. WTI Crude and Brent oil prices surged by the end of the week amid escalation in the Middle East. The black gold was trading at $54.78 (+3.53% for WTI) and $60.66 (+3.31% for Brent).
EUR/USD Weekly Technical Forecast: Bullish
Monday and Tuesday trading sessions were coming under the bearish sign as EUR/USD was trying to break through the resistance at 1.1000 but failed to do so. As a result, the first two daily candlesticks were in the red as the bears were weighing on the exchange rate. Things changed on Wednesday as the pair drew three straight candles in the green, adding more than 120 pips and closing the week near the resistance of 1.1050. The bullish swing was able to breach the upper trendline of the descending channel, which never happened since the recent downtrend started in June this year.
The technical sentiment remains bearish in the long run but temporary support from the bulls is likely. Although the momentum eased, according to the Average Directional Index, the positive surplus was widened, which points to a possible breakthrough on the upside. Relative Strength Index jumped above the 50% threshold, sending a strong signal that the sentiment changed to bullish. The only nearest obstacle for the bulls to complete the mid-term reversal is the 55-days exponential moving average coming at 1.1048 currently. There was a similar occasion previously (see the red arrow on the daily chart below), but the pair failed to breach the resistance curve. Therefore, if the bulls were able to lift the rate above 1.1050 in a substantial manner (at least two daily candlesticks with the close rate above it), then the technical analysis would conclude the bullish reversal.
We’d suggest a bearish pullback to the previously breached resistance (now support) mark of 1.1000, which is also the psychological level. That pullback might give a brilliant opportunity to enter the market with fresh long positions, counting on a bullish breakthrough. If the bulls failed to overcome the defensive barrier, EUR/USD would return to the long-term downtrend and even renew multi-year lows in the medium-term perspective. Thus, traders should monitor the momentum around the resistance and follow intraday signals.
USD/JPY Weekly Technical Forecast: Bullish
Dollar-yen was rising throughout the past trading week. Even though there was a single red daily candlestick on the chart below, the overall momentum remained stable. The pullback was related to the significance of the resistance, which was represented by Ichimoku Conversion Line. After it was breached, USD/JPY opened the door for further bullish achievements and even tested the horizontal static resistance at 108.50 yen per dollar. On the other hand, the pair charted the second top a couple of pips below the previous one.
The technical sentiment is robust and the direction of the trend is bullish. Ichimoku Cloud is in good shape to proceed with the uptrend, the leading span widened its positive range. Williams %R oscillator bounced off the overbought zone, signalling a possible rebound to 108.00. Stochastic RSI has both lines headed north in the right order to keep the bullish pressure.
It’s recommended to hold long positions for USD/JPY for those traders who still have them in portfolios. Those who missed the chance to jump in should wait for a counter-trend bounce to 108.00 or 107.80 before opening fresh deals. When it comes to possible targets in the week ahead, it’s worth looking at the previous bullish rally at the end of July. USD/JPY tested the high of 109.36 on August 1 before falling into the recent downtrend, and the same level could be seen on the charts this week. Further action will depend on the overall market’s momentum and fundamental news, so there would be a sense to take at least partial profits there.