Global equities continued rising
The macroeconomic reports and monetary policy decisions helped global equities to keep rising above all-time highs this past week. The U.S. Federal Open Market Committee voted for a third interest rate cut this year, supporting major stock indices. What’s more, the policymakers decided to hold the rate for a while but underlined the data-dependance of the future policy. Thus, if the U.S. economic growth continued to slow down in the upcoming months, the regulator would be ready to step in with more softening. The U.S. GDP and NFP reports, as well as corporate earnings, were also in favour of the growth of equities.
So the S&P 500 benchmark gained strength of +1.30% and closed the week at 3065.2 points, the highest rate on record. Tech-heavy NASDAQ surged by +1.58%, adding 126.4 points to the total cost of 100 companies, which reached the level of 8145.2 points. The Dow Jones Industrial Average climbed another +1.22% or 330.0 points this past week. Overseas indices followed the world’s leading economy. Japan’s Nikkei 225 index climbed +0.17%, German DAX 30 gained +0.52%, French CAC 40 added +0.69%. The only exception was the British stock index FTSE 100, which slid -0.17% but recovered mid-week losses.
The U.S. dollar lost ground
After a corrective price action in the previous week, the U.S. dollar failed to sustain gains. The U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies declined by -0.72% and closed the trading week at the lowest level since August 9. The world’s reserve currency weakened versus most of its major peers except the Canadian dollar, which was not supported by the Bank of Canada (USD/CAD +0.63% to 1.3142). The most heavy-volume traded currency pair in the FX market - EUR/USD - added +0.77% to the exchange rate (1.1165 weekly close).
The British Pound was also strong across the board as GBP/USD rose by +0.86% to 1.2939 despite the Brexit uncertainty and upcoming general elections in the United Kingdom. The Swiss Franc was overperforming the rest of the European majors as USD/CHF dropped -0.89%, failing to hold gains below the parity. USD/JPY also declined (-0.45%) but with a slower pace as the Bank of Japan expressed the readiness to support local exporters and intervene in the FX market if needed.
Two commodity currencies - Aussie and Kiwi - were leading the block of high-risk assets. AUD/USD recovered by +1.34% to 0.6914, the highest rate in three months. NZD/USD followed the neighbour and added +1.24% to the exchange rate, which reached the level of 0.6428. The Chinese Yuan, Mexican Peso and Indian Rupee were also growing this past week.
Metals are ready to rally
Precious and industrial metals surged this past week. Gold and Silver prices were rising on the back of a larger liquidity level after the FOMC rate decision. U.S. 10-year Treasury yields, which dropped -4.3% after the rate cut, also helped gold and silver bulls to push prices higher to $1514.02 (+0.64%) and $18.080 (+0.43%) per ounce, respectively. Copper led the industrial section with +2.64% gains. Palladium continued its unstoppable uptrend on the back of strong demand from automakers, adding another +2.31% to the price of $1804.90 per ounce. Platinum gained +2.56%. WTI Crude Oil price failed to continue the uptrend and slid by -0.99% but recovered mid-week losses, bouncing from the weekly bottom at $52.73 to $56.06 per barrel.
EUR/USD Weekly Technical Forecast: Bullish
The latest downside action was limited and short-lived. EUR/USD regained the bullish momentum, growing for five straight days last week. The main fundamental reason was related to the greenback’s weakness across the board on the back of dovish U.S. Federal Reserve. Which cut the interest rates for the third time this year. The bullish trade was halted last Thursday as the last day of the month forced some traders to take profits and close deals. However, the upside pressure renewed last Friday despite strong U.S. employment and average earnings reports.
From a technical point of view, the daily chart below shows a possible double-top pattern. The bulls can overcome that potential reversal pattern if they managed to close a day above the recent peak at 1.11708 (daily close on October 18, not the upside whipsaw). The current rate of 1.11654 is extremely close to that target, so that’s going to happen sooner rather than later. The triple EMA indicator with periods 21-, 34- and 55- days had almost reversed to positive sentiment. What’s more, the bearish action was supported by EMA21, which underlines the bullish momentum. MACD trend indicator is bullish with both lines headed north. The lower high of the histogram might seem like a possible bearish divergence, but it’s not confirmed by lines nor the price. The 13-days Relative Strength Index is well above the threshold of 50 and it has a lot more room to rise before the overbought conditions are reached.
We suggest that the EUR/USD currency pair could keep moving in the ascending channel recently formed after the sequence of higher lows. The reversal will be confirmed after the pair tested the upper band of the channel at around 1.1263/1300 in the week ahead. That target also coincides with recent peaks at 1.1252 (August 06) and 1.1277 (July 18). We’d recommend taking partial profits at around that resistance range. The technical support range is at 1.1114/37 where fresh long positions could be considered.
Gold Weekly Technical Forecast: Bullish
The price of gold tested the bottom of the recent sideways range, which has a slightly bullish bias. The weekly bottom at $1481.37 gave the bulls a perfect opportunity to enter the market and open with-the-trend positions. As a result, the yellow metal bounced off the low and continued the long-term uptrend, charting another higher high on the daily chart below.
The bullish action on Thursday and Friday caused two bullish signals from technical indicators. First, Stochastic RSI (which is one of the most sensitive oscillators) performed the bullish crossover, and both lines headed towards the overbought territory. Second, Parabolic SAR dots jumped below the price, signalling strong demand for the precious metal. The Average Directional Index with a period of 14 days had also shifted the sentiment to bullish as the surplus between -DI and +DI turned green. However, the bulls lack the power to push the price higher as the ADX main line is far below the threshold. Therefore, buyers have to close a day above the recent peak at $1532 in order to regain the momentum and accelerate the bullish price action. Otherwise, the price could keep hovering in the same tight consolidative channel.
The buy-dips trading strategy looks the most attractive as the daily action is quite choppy so far. The support trendline is ascending, so the support range is growing to $1490/1500 for the week ahead, and if nothing crucial happened on the fundamental front, the price of gold should bounce towards that range before reversing and rewriting local top. Shorting gold looks dangerous as such a deal would be against-the-trend and whipsaws below the daily candlesticks confirm the demand for gold across the board.