Global stock indices drift
The ongoing story of U.S.-China trade talks failed to convince global equity investors to proceed with the risk-on trading mode noted at the beginning of October. This past week’s headlines were mixed as China’s economy slowed down its growth pace to the lowest level since the mid-’90s, the Brexit saga did not come to an end yet, corporate earnings were not so solid as some of the bulls expected. Therefore, global equities were trading with a mixed bias this past week.
The S&P 500 benchmark failed to hold early gains slightly above the psychological round-figure mark of 3000 points and closed the week with an insignificant gain of +0.24% at 2988.8 points. Tech-heavy NASDAQ 100 had similar performance with +0.31% gain, closing the week at 7864.7 points. Blue chips of the Dow Jones Industrial Average declined by -0.53% to 26791.0 points on the back of disappointing reports from several corporations.
In contrast, Japan’s Nikkei 225 index soared +3.18% after the weekend gap and closed at the highest level in 12 months. German DAX 30 index added another +0.97% to its value, finishing the trading week at the highest level since July 2018. French CAC 40 and British FTSE 100 weren’t so optimistic, falling -0.52% and -1.17%, respectively.
The U.S. dollar index lost ground
DXY dropped -1.21%, charting the largest weekly loss in four months. The greenback was sold off versus most major currencies on the back of renewed talks about possible interest rate cuts by the Federal Reserve this year. Positive economic headlines also helped the dollar’s peer to gain strength. For instance, EUR/USD added +1.20% to the exchange rate and finished the week above the resistance level of 1.1150 for the first time since in ten weeks. USD/CHF went off the parity, closing at 0.9844 (-1.26%).
The strongest currency was the British Pound as GBP/USD kept climbing on the back of positive news from the Brexit negotiations. The U.K. and the E.U. arranged a deal, and the only thing left for Boris Johnson is to pass the deal through the British Parliament this weekend. GBP/USD gained another +2.65% and closed slightly above the psychological round-figure mark of 1.3000 dollars per pound. Given the importance of the vote, weekend gaps are possible on both sides for Sterling.
The Japanese yen was reflecting the uncertainty in global equities and USD/JPY remained pat this past week. Commodity currencies were gaining strength though. AUD/USD appreciated +0.94% to 0.6857, coming off multi-year lows; NZD/USD climbed +0.75% to 0.6385 after bottoming out at 0.6240 in the middle of the week; USD/CAD underperformed the rest of the FX market by sliding only -0.56% to 1.3128. Most of the emerging market currencies were in demand as well.
Precious metals flat, oil slips
The price of gold was hovering at a tight range of $1477/98 as the bears did not have a wish to push it lower, while the bulls could not lift it higher. Silver price charted third weekly doji-candlestick in a row, reflecting traders’ indecisiveness. However, Palladium traders did not pay too much attention to the rest of the commodity market and kept lifting the price higher to all-time highs above $1750 per ounce (+3.21%).
Oil price, both WTI Crude and Brent, faced the selling pressure on the back of growing inventories in the United States. The supply concerns were unable to satisfy the bulls, while weak global demand kept weighing on the market sentiment. As a result, WTI Crude slid -2.03% to $53.67 per barrel despite Thursday’s uplift of more than 2%. Brent oil price declined by -2.26% to $59.29 per barrel.
EUR/USD weekly technical forecast: Bullish
Most of the technical analysts suggested that EUR/USD could not breach the technical resistance level at 1.1150 with the very first attempt. The recent multi-year lows at around 1.0900 are still fresh in traders’ memory, although the bullish rebound was maturing for quite a while. Three consecutive weekly candlesticks in the green pointed out that the bulls are not ready to give up, insisting on even a deeper retracement toward 1.12 and 1.13 handles. The daily performance was smooth and consistent as EUR/USD gained strength in four straight days this past week.
The technical sentiment had shifted toward the bullish phase on the daily chart below. The MACD trend indicator is extremely bullish as its histogram showed the highest momentum since August 2018, while both lines went into the positive territory. 13-days Relative Strength Index is not only above the 50% threshold but also headed toward overbought level, which never happened since February 2018. The set of three exponential moving averages is headed north, and it’s about to reverse the sequence in the same way it happened during the latest retracement on June 2019.
Possible daily targets are as follows: 1.12138, the highest daily close rate charted on August 12; 1.1277/86, the rangebound resistance in early July; 1.1400, the top of the bullish correction from June 24. We’d recommend holding EUR/USD longs for those traders who managed to jump in this past week and wait for a bearish bounce toward 1.1130/50 before opening fresh shorts by those traders who missed the opportunity. Short positions are risky and too early to give the speed of the bullish acceleration.
GBP/USD weekly technical forecast: Bullish
Sterling gained 6.5% versus the U.S. dollar in two weeks. The one-way price action only underlines how GBP/USD was oversold recently. Of course, the key driver for such an impressive bullish rally is related to the progress in negotiations between the United Kingdom and the European Union in terms of Brexit. What’s more, Sterling has even more potential to grow versus major currencies as the deal is not arranged yet. The British Parliament will vote this weekend, and further trend’s direction will depend on that historical decision. The only thing to guarantee for the week ahead though is high volatility in GBP/USD and other pound crosses.
The blue descending resistance trendline on the daily chart below has been breached for the first time since the recent downtrend started in April 2018. The breakout noticed on October 15 was not the first attempt though. The bulls already tried to test the resistance line on October 9 and pulled back after failing. The Fibonacci Retracement Levels tool points to the nearest resistance (and weekly target for the bulls) at 1.3179 (50% of the downtrend). That mark was already reached during the bullish retracement in May this year. If the bulls were able to break through that level, the road to 38.2% Fibo resistance at 1.3452 will be open.
On the other hand, it’s worth having a look at a larger timeframe to assess the long-term potential for the uptrend reversal. The weekly chart below shows that GBP/USD came extremely close to the bottom of the Ichimoku Cloud resistance range. The leading span is about to perform the bullish crossover for the first time since December 2018. If that happened, the pair could easily pass the Cloud resistance and go out to the free territory with the nearest target above 1.3600. The blue dashed line represents a magnetic median target for the price action since the Brexit meltdown in Summer 2016. If the Sterling could close the upcoming week above 1.3250, maintaining the same pace of the rally, the sequence of lower highs will be crashed, and the currency could come back to the long-term recovery. On the other side of the equation, if the British Parliament refused to support the deal with the European Union, investors and traders would be widely disappointed and Sterling could crash in a blink of an eye. Therefore, we are entering a crucial period for the GBP/USD currency pair.