The first trading week of the year 2020 was not too volatile nor active in terms of the trading volume amid holidays around the globe. Most of the major stock indices were drifting around the same levels as in the last trading week of the previous year, some of them even rebounded from local and historical top levels. The world trade issue was not so clear in terms of negotiations development between the two largest world’s economies, some of the headlines were even pessimistic. Trump’s decision to attack Iran’s top general caused concerns about a possible military conflict in the Middle East, which did not add the risk appetite to global investors.
So the S&P 500 benchmark finished the trading week flat with two shadows on the weekly candlestick, reflecting the directionless price action. Tech-heavy NASDAQ 100 was more optimistic in terms of growth (+0.36%), while a long upper shadow on the chart added doubts about further upside action in the near future as a technical correction might be in place. The Dow Jones Industrial Average remained flat as well.
Overseas indices had a mixed performance. Japanese Nikkei 225 slid -0.76% after gapping on the downside after the past weekend. The German DAX 30 index extended losses of -0.88%, retracing from the recent peak. French CAC 40, in contrast, gained +0.11% with a long downside shadow on the weekly candle, which reflected the demand for the benchmark on bearish rebounds. British FTSE 100 failed to sustain three-weeks gains and declined by -0.54%.
The U.S. dollar index recovers mid-week losses
The world’s reserve currency had a two-sided price action with a local bottom printed on Wednesday and two consecutive daily candles in the green after that. As a result, the dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies declined by only -0.12% and charted a long downside whipsaw on the weekly timeframe. This action could signal the end of the bearish formation on mid-term timeframes.
The single European currency was indecisive in terms of the bullish continuation. There was a test of the local peak at 1.1239 but then EUR/USD reversed and slid back south, losing -0.15% by the end of the week. The Swiss Franc kept showing strength as USD/CHF continued declining and even tested the lowest rate since September 2018 at 0.9647. However, the demand across the board helped the pair to recover on Thursday and Friday. The British pound remained flat after a failed attempt to develop the ascending formation.
The Japanese yen was the strongest currency among majors this past week as USD/JPY dropped -1.23% to 108.11, the lowest rate in 9 weeks. The main fundamental driver was related to the risk diversion and profit-taking flows in the equities market. The same impact was noticed on commodity currencies like the Australian and New Zealand dollars weakened versus the greenback by -0.50% and -0.58%, respectively. The Canadian dollar was an exception as the currency was supported by growing oil prices, and USD/CAD dropped -0.61% to 1.3002 for the first time since October 2018.
Gold and oil surge
The price of gold soared for the second straight week and even accelerated the pace of growth. The yellow metal added +2.73% to the price of $1552.11 per ounce, which was the highest weekly close price in almost seven years. The price of silver rose by +1.61% to $18.05 per ounce, while palladium accelerated the long-term bullish rally, surging +4.28% and closing the week at the highest level in history - $1982.00.
WTI Crude and Brent oil prices reflected worries about the Middle East tensions. The price of the black gold was vulnerable to concerns over possible supply shortages caused by military activity in the region. One barrel of WTI Crude has got more expensive by +2.26% to $63.02 in New York, while London Brent added +0.63% to the price.
USD/CAD weekly technical forecast: Bearish
The Canadian dollar kept appreciating versus the greenback for the sixth week in a row. USD/CAD reached the psychological round-figure support level of 1.3000 for the first time in 14 months. On Wednesday, the bears were able to test 1.2950 in a sharp sell-off, but the bulls stepped in, lifting the pair back to the support level. That surprisingly volatile price action as per the first week of the year was coming together with the strong demand for WTI Crude oil.
Technically speaking, USD/CAD is in the descending formation on the daily timeframe (see the screenshot below), and the past week’s price action was nothing but a test of the support trendline (green). The Double-Bolli indicator (period of 21 days, deviation 1 and 2) performed the bearish breakout signal on Wednesday, however, the exchange rate went back above the lower curve, which might be a signal for a bullish retracement. The Relative Strength Index with a period of 13 days is extremely oversold and its line is headed north. If the oscillator's value was able to cross the oversold threshold from above, the buying pressure might rise, helping the bulls to recover some of the previous losses. On the other hand, the long-term analysis points to a sustainable downtrend, and the upside movement might be limited by the second Bollinger Bands’ line coming at 1.3063. If the pair did not cross that resistance curve from below, then the selling pressure would resume, offering a brilliant chance to open more short positions, implementing the sell-highs trading strategy. Otherwise, the retracement could send USD/CAD toward the middle line at 1.3138. Therefore, traders who did not take profits from previous shorts yet, should do so, and get the wait-and-see position, counting on short entries with better prices in the week ahead.
USD/JPY Weekly technical forecast: Bearish
The Japanese yen was the strongest currency among majors this past week, reflecting the risk-off sentiment in global financial markets. Profit-taking flows in the equities market, as well as additional demand for safe-haven assets, sent USD/JPY to 108.11, the lowest exchange rate since November 1. However, the technical analysis shows that the long-term uptrend is not over yet and here is why.
Ichimoku Cloud trend indicator is still bullish as the leading span did not perform the bearish crossover yet, even though the positive surplus was almost erased in the past week. The bearish retracement was rather predictable, the only question was in its depth. USD/JPY crossed several support levels from above, including Ichimoku’s conversion line and the upper band of the cloud. Since then, a deeper correction took place toward the bottom of the uncertainty zone. The good news is that the bearish action was limited by the bottom of the cloud.
If the bears were not able to push the rate below the bottom of the cloud, the bearish retracement would come to an end. Otherwise, even one daily close price below the threshold could signal the beginning of a new downtrend as the Ichimoku Cloud indicator would complete the first phase of the reversal formation. Aggressive longs on bearish whipsaws are possible, but traders should keep their stop-loss orders tight. Shorting the pair would be too late as the bears could get stuck above strong demand and support levels.