Despite quite a low volatility compared to previous trading weeks, global equities advanced towards all-time highs on the back of mostly positive corporate earnings reports. The geopolitical environment was quite calm as well, allowing U.S. stock indices to gain strength, although the pace of growth was not as large as some of the hawks were expecting.
The S&P 500 benchmark added 1.12% to its value of 3025.8 points, just a couple points above the highest weekly close noted on the week of July 22. Tech-heavy NASDAQ was overperforming the rest of the Ameican indices, surging almost +2%, and closing the week at the new historical record of 8018.8 points. Dow Jones Industrial Average gained only +0.7% to 26958.1 points.
Overseas stock indices were trading with a bullish bias. Japanese Nikkei 225 climbed +1.35%, German DAX 30 and French CAC 40 soared +2.07% and 1.52%, respectively. The leading index among majors was British FTSE 100, which surged +2.52% on the back of positive news from the Brexit story.
The U.S. dollar recovers losses
The greenback gapped through the previous weekend on the positive side and managed to maintain the bullish momentum throughout almost all of the previous week. The U.S. dollar index added +0.71% to its power versus the volume-weighted basket of six major currencies but remained below the 6-weeks average. One of the main drivers for DXY was the growth of 10-year Treasury yields, which seem to bottom out after the recent long-term plunge.
The Single European currency was among losers though. EUR/USD declined by -0.81%, came off the 10-week high at around 1.1200, and closed the week at 1.1080. The British Pound also went out of the round-figure resistance at 1.3000, losing -1.21% of the exchange rate versus the U.S. dollar. Although the rebound is not so large yet, GBP/USD lost more than 170 pips in the bearish trade this past week. USD/CHF overperformed the rest of the European currency pair, edging higher by +1.04%, threatening to re-test the parity for the third time recently.
In contrast to other majors, the Japanese yen weakened last week, reflecting the overall risk-on trading sentiment, especially in the equities market. USD/CHF added +0.23% and charted a green weekly candlestick despite the previous week’s Doji Candle formation. Although the pace of appreciation was not too large, the pair kept trading at around the crucial technical resistance range of 108.80/109.00. Most of the emerging market currencies including South African Rand, Mexican Peso and Chinese yuan kept climbing on the back of sustainable demand for high-yield assets. Commodity currencies were mixed: USD/CAD -0.52%, AUD/USD -0.50%, NZD/USD -0.56%.
Both Brent and WTI Crude oil charted a real rally, surging +4.50% and +5.50%, respectively. The main reason was an unexpected decline in U.S. crude oil inventories and constant demand in Europe. Middle East tensions did not add power to oil bears as well. The New York trading session was closed at the level of $61.76 and $56.62 per barrel.
Gold and Silver prices managed to break through significant technical resistance levels. Gold closed the week above $1500 for the first time in four weeks, Silver went for the weekend pause at $18.000 per ounce. Precious metals could continue the long-term bullish trend this upcoming week as the latest bearish retracement seem to come to an end.
EUR/USD weekly technical forecast: Neutral
The pair declined for four days out of five this past week. Wednesday’s indecisiveness by FX traders was related to expectations for the last press-conference hosted by Mario Draghi as ECB President. Super Mario did not surprise investors, repeating his dovish mantra about the lack of inflationary pressure and economic slowdown in the Eurozone, so the regulator continued its soft monetary policy and supportive measures to boost liquidity in the region. As a result, traders kept selling EUR/USD.
The technical sentiment did not change compared to the previous week, although EUR/USD slid below 1.1150 and 1.1100 barriers again. The rate stayed above all of the three exponential moving averages (21-, 34- and 55-days) on the daily chart below. The support range between 1.1050 and 1.1080 is crucial for the recent uptrend. If the daily close rate remained above it, the upside pressure could lift the pair back to 1.1200 resistance. Otherwise, the long-term downtrend will be renewed.
MACD trend indicator is still in the positive territory, the histogram is in the green both lines did not perform the bearish crossover yet. Fast 13-days Relative Strength Index is also above the 50% threshold, confirming the mid-term bullish momentum. The overall technical sentiment is bullish.
Therefore, shorting EUR/USD is too early, while conservative longs with small trading volume might be in place for the week ahead. The only concern is about the greenback, which could keep gaining strength amid the rise in U.S. 10-year Treasury yields and bullish run in U.S. equities. However, stop-loss orders and take-profit targets have to be kept tight until the market will confirm further trend’s direction. Support pivot points are as follows: 1.1067 (EMA55), 1.1056 (EMA34) and 1.1038 (the highest daily close on October 11). Resistance levels are 1.1106 (daily low on October 23), 1.1162 (daily high on October 24) and 1.1200 (round-figure handle).
GBP/USD weekly technical forecast: Bullish
As long as the British Pound was extremely overbought on short-term time frames, daily and intraday oscillators needed a reload, while the bulls had to regain the momentum. Thus, the bears arranged a counter-attack, fighting for the round-figure defensive barrier at 1.3000 last Tuesday. That daily candlestick was decisive for the whole trading week as it had long shadows on both sides and comparatively small body. That inability of bulls to proceed with the buying pressure triggered heavy-volume entries on the other side of the equation and GBP/USD slid almost 200 pips counting from the local top. However, the supportive mark of 1.2800 dollars per pound was a tough nut to crack for the bears, and it might hold the rate this week as well.
Technically, GBP/USD is in a short-term retracement from the downtrend started in mid-March this year. The median dashed line (green on the chart below) is descending, and it could act as a magnetic line attracting daily prices. The Average Directional Index points to a strong momentum as the mainline is headed north. However, the surplus between -DI and +DI lines has changed to bearish, indicating a deeper retracement. Stochastic RSI confirmes the previous suggestion as its both lines went off the overbought zone and headed south after the bearish crossover. The only bullish sign still in play is the Parabolic SAR as its dots did not jump above the current rate so far.
We suggest that GBP/USD could through a long downside tail this week, bottom out and reverse the price action. Such a bearish whipsaw on a daily candle could signal that the bearish retracement is over and the pair would eye 1.3000 as the short-term target again. The distance of 200 pips is nothing for such a volatile currency as the British pound, and that distance could be made in one single day. The only requirement for that is the fundamental environment and optimistic headlines about the Brexit outcome.