Equities retraced but recovered
Global stock indices were vulnerable to risk-off sentiment amid geopolitical and trade concerns at the beginning of the first trading week of December. Some of the benchmarks were plunging for almost 3% by Tuesday. However, positive macroeconomic news, especially from the Labour market in the United States, and attractive prices after the rebound, led to strong demand for global equities across the board. As a result, major indices recovered mid-week losses and finished the trading week near all-time highs.
The S&P 500 index charted a long downside shadow on the weekly candlestick, closing it with an insignificant loss of -0.06%. What’s interesting, Friday’s rally allowed the benchmark to gain +0.88% or 27.5 points in one single day after the Non-Farm Payrolls report showed an unexpected jump in the number of new jobs created in November (+226K versus +186K forecasted), while the unemployment rate dropped to 3.5%, the lowest level in 50 years. Tech-heavy NASDAQ and Blue-chips DJIA had similar performance with downside whipsaws on weekly candles and close rates almost flat (-0.19% and -0.36%).
Overseas indices also bounced off the local bottom, regaining the bullish momentum by the end of the week. Japan’s NIKKEI 225 printed moderate gains of +0.26% thanks to the weekend’s gap, German DAX 30 lost -0.53% of the value, while French CAC 40 declined by -0.56%. The weakest stock index among majors was the British FTSE 100, which dropped -1.45% or -106.9 points.
The U.S. dollar weakened
Although surprisingly strong NFP report supported the greenback on Friday, the world’s reserve currency was weakening versus its major peers throughout the trading week. The U.S. dollar index dropped to 4-weeks lows, losing -0.60% of the value and closing the week at 97.68 points. All of the six major currencies, which represent the volume-weighted basket measuring the greenback’s value, strengthened simultaneously.
The leading currency in the foreign exchange market was the New Zealand dollar. The Kiwi surged +2.23% or 143 pips versus the greenback and +1.37% or 97 pips versus the yen. The Australian dollar also was among leaders versus the greenback (AUD/USD +1.17%), but the New Zealand dollar continued its impressive rally, pushing the AUD/NZD cross-rate (-1.08%) to the lowest rate since August.
The British Pound impressed currency traders as well. GBP/USD soared +1.56% or 201 pip, printing the second result of gains this past week. Thanks to this rally, Sterling cross-rates strengthened across the board (GBP/JPY +0.72%, GBP/CHF +0.58%, GBP/CAD +1.33%). The most liquid cross-rate in the FX market - EUR/GBP - continued its impressive downtrend, losing -1.17% of the exchange rate this past week. The pair is about to test the lowest level never seen since April 2017 (two and a half years).
Although Swiss Franc’s strength was related to the overall decline of the greenback (USD/CHF -0.97%), Japanese yen’s performance was surprising. The safe-haven currency should have weakened on the back of risk-on sentiment noticed in the equity market. But that did not happen as USD/JPY declined by -0.85% or -93 pips. Yen crosses had an opposite price action though. The Canadian dollar gained strength versus the greenback as well. However, USD/CAD charted the lowest decline (-0.19%) compared to other pairs.
Metals drifted, oil rallied
The price of gold reflected the change of the risk sentiment in the financial markets. Initially, the yellow metal was edging higher and tested the four-weeks high at $1484 per ounce. However, the bulls failed to hold mid-week gains and the price of gold dropped back to where it started the week - $1460, losing -0.24%. The price of silver suffered from a more significant loss of -2.77%, finishing Friday’s trading session at the lowest level since in four months. Palladium’s rally is unstoppable as the metal gained another +2.12%, printing a new all-time high at $1878 per ounce.
WTI Crude and Brent oil rallied +7% and +5.86%, respectively. The main fundamental driver was the OPEC meeting. The organization decided to cut the global output and support the black gold price.
EUR/GBP weekly technical forecast: Extremely bearish
Technical indicators are getting extremely oversold on the daily timeframe of the EUR/GBP cross-rate, however, that should not mislead forex traders as fundamental drivers weigh the most. The single European currency is in a long-term downtrend versus the British Pound since the peak on August 11. The long-term analysis shows that the bears are reaching the lowest level in two and a half years, so the downtrend might continue.
The daily chart setup below shows that Williams Alligator is in the eating mode since its lines performed the bearish crossover in mid-October. Last Monday, EUR/GBP bounced back up and tested the resistance curve at 0.8560 but failed to break it through by the daily close price. As a result, the bears accelerated the selling pressure and the pair dropped almost 140 pips in four-days sell-off. MACD lines were heading north before that, signalling a bullish retracement. But since they performed the bearish crossover, a further decline is likely. The histogram confirmed the signal to short EUR/GBP as it turned negative for the first time since October 30. Fast RSI oscillator with the period 13 days kept lowering and reached the oversold territory. However, the bounce back did not happen and the downtrend should continue in the same way as it happened on October 15.
A conservative trading strategy suggests waiting for another rebound toward the resistance level of 0.8535 before entering the market with fresh shorts. However, such a depth might not be reached as EUR/GBP is heading to a horizontal support line at 0.8356, the lowest close rate charted on April 18, 2017. The bears would not waste such an opportunity to try the water below that support as many postponed orders and stop-loss orders are hidden there. So an aggressive approach would be to short EUR/GBP right on the Monday open, adding the volume to trading positions in case of a bullish whipsaw. Targets are the same as mentioned above because there is no technical support before that level.
NZD/USD weekly technical forecast: Extremely bullish
The New Zealand dollar managed to impress even experienced forex traders this past week. The last time NZD/USD printed such an impressive bullish rally (+2.23%) in January 2017. Besides, the pair breached several important technical resistances. Indicators are going wild, so a graphical analysis is required to assess how far NZD/USD could fly shortly.
The daily chart below shows that the exchange rate went through several horizontal resistance lines like a hot knife through goes butter. First, the pair breached the horizontal level at 0.6441 charted on October 5, 2018. Second, the Kiwi did not even notice the horizontal line coming from the local bottom in June 2019. But if we look at the blue triangle on the chart, we’d see that there was a technical background for that impressive rally. The horizontal resistance was tested several times before and bearish rebounds resulted in the sequence of higher lows. So the bulls breached the base of the triangle, forcing the bears to retreat and accelerating the uptrend.
Talking about possible targets, we should indicate the workout depth of the triangle first. The yellow range represents the distance of how far the pair should rise before the pattern would be considered as completed. So 0.6616 is the target. Next, the descending green trendline represents resistance band of the downtrend started in March 2019. That line coincides with the triangle workout target. Before surging that high, NZD/USD might face strong selling pressure at around the long-term simple moving average with a period of 233 days (0.6580). The bulls were five pips away from that target this past week, and the momentum points to another test of the blue curve. On the other hand, a bearish rebound could help technical indicators to discharge the overbought pressure at extreme levels. But such a downside whipsaw should be considered as a perfect chance to join the party and long NZD/USD in the week ahead.