Global equities stuck
Investors and traders could not keep lifting global stock indices further this past week. The six-weeks bullish rally was halted amid concerns about the global economic growth, uncertainty in U.S.-China trade talks and unconvincing data in periodic reports in many regions. Although the first part of the past trading week was quite positive, equities could not hold early gains and finished the trading week flat or even with comparatively small losses.
So S&P 500 index slipped 2.7 points (-0.09%) to 3112.6 points after printing all-time high value at 3132.7 points. The unchanged result was reached thanks to Friday’s rally of +0.34% as the benchmark was losing -0.77% on Wednesday’s low. Tech-heavy NASDAQ charted a similar performance and slid -0.47% to 8277.0 points. The Dow Jones Industrial Average lost -0.27% (74.5 points) of its rate and closed the week at 27889.0 points.
Overseas indices were hit even harder. Japan’s Nikkei 225 had entered into a bearish retracement as the index printed second consecutive weekly loss of -0.82% (-1.20% in total). German DAX 30 and French CAC 40 also struggled to continue the bullish run and lost -0.59% and -0.78%, respectively. After several volatile changes of the trade direction, British FTSE 100 remained pat, recovering most of its mid-week losses.
The dollar is buoyant
The U.S. dollar index measuring the greenback’s strength versus six major currencies added +0.27% to its value in choppy trade this past week. The price action was more like a directionless floating as most of the currency pairs were hovering in tight ranges throughout the week. EUR/USD tested technical and psychological resistance level of 1.1000 but failed to hold gains and reversed the action toward 1.1000 support, finishing the week at 1.1020. The British pound was also weak versus the U.S. dollar, losing -0.54% (70 pips) of the exchange rate. The Swiss Franc was underperforming the rest of major European currencies as USD/CHF gained +0.77%, closing the week just 27 pips below the parity.
The Japanese yen and New Zealand dollar did not follow the overall demand for the greenback across the board. USD/JPY was reflecting soft price action in global equities, hovering up and down, and closing the week almost flat (-0.12%), while NZD/USD remained pat amid continued hawkish rhetoric by the Reserve Bank of New Zealand. The Australian and Canadian dollars were among the weakest currencies versus the U.S. dollar as AUD/USD slid -0.51% and USD/CAD climbed +0.60%.
Emerging markets currencies had a mixed performance with mainly soft bias. For example, Chinese yuan and Mexican peso were weaker than South African Rand and Indian Rupee.
Gold was trading near two-month lows at $1461.90 (-0.41%), while Silver finished the week almost unchanged after a volatile directionless action (+0.22%). The bearish retracement noted for the price of Palladium in two previous weeks had come to an end as the metal rallied with +3.92% gain. WTI Crude and Brent oil prices were losing almost 5% on Tuesday after two-days sell-off, however, managed to pare losses, closing the week at the same level where it started.
EUR/USD weekly technical forecast: Bearish
Simple Moving Average with a period of 21 days limited the bullish price action this past week. Although the bulls had several attempts to break the resistance curve through, all of them failed to lift daily close rates above the SMA21. The highest weekly rate was registered at 1.1100, which indicates the level where postponed sell-orders are located. The bears are ready to keep pushing the exchange rate lower but the soft momentum, low trade volume and volatility point to the fact that the downtrend does not have a fundamental driver to accelerate. The trading range of fewer than 100 pips per week remains tight, which does not add attractiveness for EUR/USD for currency traders.
However, technical indicators are in the bearish zone. The exchange rate is below SMA21. MACD histogram is negative, both lines are below zero as well. Fast and sensitive Relative Strength Index (13-days period) edged higher above 50 for a moment, reflecting the upside swing noted in the previous week, but could not hold gains above the threshold dividing the bullish and bearish phases. What’s more, the oscillator reversed and headed south again with a lot more room to go before the oversold territory is reached.
We suggest a sell-highs trading strategy for the week ahead. Daily resistance levels might be indicated by SMA21 and horizontal static lines, which held the bulls recently. The range attractive to open fresh shorts includes 1.1073/78 (close rates on October 25 and November 19) and 1.1097/1118 (highest rates on November 21 and October 29). When it comes to possible targets for low positions, we’d mention 1.1006 and 1.0956 in extension.
AUD/NZD weekly technical forecast: Bearish
As long as U.S. dollar and major currencies were stuck in tight ranges this past week, and further trend’s direction is unclear amid fundamental uncertainty, cross-rates became more attractive for Forex traders. The most interesting divergence was noticed in the Aussie-Kiwi cross-rate. Traditionally, both currencies are moving together as their economies are related to each other. However, the recent support from the Reserve Bank of New Zealand was quite unexpected for Kiwi traders. As a result, AUD/NZD dropped -2.5% in two weeks, which is abnormal for the pair.
The bears continued the selling pressure on AUD/NZD in the past week as well. AUD/USD followed the main trend and softened the exchange rate while NZD/USD remained flat despite the overall demand for the greenback across the board. From a technical analysis point of view, AUD/NZD had finished the bullish trend, reversed and accelerated the bearish action. The likelihood of a bearish continuation is extremely high for the week ahead and here is why.
The Double-Bolli chart setup points to extremely bearish sentiment. The rate is in the bearish channel and the selling pressure will continue until daily close rates are below the yellow indicator. What’s more, there was a bearish breakout signal last week as the daily close rate breached the bottom band, which also points to the downtrend continuation. Finally, True Strength Indicator turned negative as the histogram dropped below zero and increased the bearish momentum, while the red line performed the bearish crossover.
If things continued in the same way as previously, and the bulls did not have enough power to reverse the price action, AUD/NZD can go south as deep as to 1.0343 - the lowest daily close rate since the bullish rally on August 7. If the horizontal static support level failed to hold the bears, the exchange rate would extend losses down to 1.0276 - the bottom noted in March this year.