Global stock indices retrace
Global equities bounced back from historical and local top levels, starting a retracement this past week. One of the main drivers weighing on investors' sentiment was the story with a new virus in China. Most of the traders still remember a similar story which happened 17 years ago and how it affected financial markets, so they were afraid of a repetition of that scenario, and started selling high-yield assets, proceeds from previous long speculative and investment positions, as well as purchasing safe-haven assets.
So the S&P 500 benchmark dropped 1% on a weekly basis, bouncing off the historical top on the back of macroeconomic concerns. Several reports coming from companies did not help the index to keep the bullish momentum. The decline was noticed on Friday when the benchmark lost -1.11% in one single day. The Dow Jones Industrial Average showed a similar performance, losing -1.24% this past week, but regaining some of the losses on Friday. Tech-heavy NASDAQ was not hit that hard as the index slid only -0.33%, charting a long upper shadow on the weekly candlestick, that the index posted a new all-time high in the middle of the week.
Overseas indices traded on the bearish side as well. The largest impact was noticed for Asian stocks, especially in the countries where the virus was spotted. Japanese Nikkei 225 was declining gradually throughout the past week and finished the trading cycle with losses of -0.89%. German Dax 30 was the only stock index among majors, which managed to gain the strength of +0.37%. The main driver supporting German equities was positive data coming out of the European Union in the manufacturing and services sectors. However, that news didn't help the French CAC 40 to show similar performance, the index dropped by - 1.25%, even though Friday's price action was positive. British FTSE 100 suffered the largest losses of -1.66%. The overall tendency was driven by fears and concerns in the global equity market.
The U.S. dollar gains strength
The U.S. Dollar index gained strength of 0.25%, keeping the bullish performance for the 3rd week in a row. The greenback was in demand mainly due to its role of the world's reserve currency as most of the high-risk currencies were sold off. However, the dollar's strength was not smooth is two currencies overperformed the rest of the FX market. Japanese Yen was stronger than other majors on the back of strong demand for safe-haven assets and lower risk appetite. The USD/JPY currency pair plunged by 0.80%, losing all of the gains from the previous week, and finishing the trading cycle at 109.28 on Friday. Another strong currency was surprisingly British pound as it reflected the opposite relation to the British stock index. GBP/USD added +0.49% to the exchange rate and closed the week at 1.3072.
Other major currencies declined versus the US dollar. Euro accelerated the bearish slide for the fourth straight week, almost reaching the psychological support level of 1.10 dollars per euro. Macroeconomic reports were not in favour of the single European currency as most of them showed worse-than-expected performance. Swiss franc reversed the price action as USD/CHF charted the first weekly candlestick in the green in 8 weeks (+0.34%).
All of the commodity currencies reflected the risk-off sentiment in the financial markets. The Australian dollar was the weakest currency as AUD/USD continued the Freefall in 4 consecutive weeks, declining by -0.7%. The New Zealand dollar, in contrast, remained almost unchanged vs the Greenback, adding selling pressure to the AUD/NZD cross rate. The Canadian dollar was also weak amid the sell-off in the crude oil market, lifting the USD/CAD currency pair towards the long-term resistance level at 1.3200 (+0.63%). Most of the emergency markets currencies declined versus the Greenback as well.
One of the largest impacts on the commodities market was noticed in the price of oil. WTI crude plunged by almost 8% on the back of fears related to the black-swan scenario coming out from Asia. The Black Gold price finished the trading week at $54.24 per barrel, while most of the analysts predict further losses. The total decline in the price of oil exceeded -14% in three weeks. Even Palladium, the most fast-moving precious metal, retraced from the all-time high, losing more than 2% of the price. Silver suffered from even harder losses of more than 7%. The only commodity gaining strength was gold as the demand for safe-havens helped the yellow metal to finish the trading week at $1571.45 per ounce (+0.92%).
EUR/USD weekly technical forecast: Bearish
The most popular currency pair in the foreign exchange market continued the bearish price action. EUR/USD showed the worst performance in the last 4 weeks, declining by -0.59% or 65 pips (four-digit quotes). What's more, the exchange rate is getting closer to 1.1000, the important round-figure support level, which code act as a threshold, holding the long-term downtrend. The weekly close rate is just 6 points above the recent bottom noted in November 2019. The daily performance was smooth, while the bearish acceleration on Thursday and Friday forced traders to increase the volume of net short positions. If the selling pressure continued in the week ahead, the market players would notice a retest of the 3-year low at around 1.0900.
The technical sentiment is negative, according to the daily chart set up below. First of all, EUR/USD breached the medium-term support curve the simple moving average with a period of 89 days, which never happened since the bullish breakout on December 2, 2019. Secondly, the daily exchange rate is reaching two important lines on the chart: the horizontal support slightly below 1.1000 and the descending dashed line acting as the median. The days were able to push the exchange rate below the magnetic median line, then the downtrend would accelerate. Both technical indicators extended the negative sentiment. MACD trend indicator enlarged a negative surplus of the histogram, while its lines dropped into the bearish zone increasing the distance between each other. Fast and sensitive RSI with a period of 13 days points to strong bearish momentum, but it's very is rather far from the oversold territory, leaving more room to go south.
When it comes to trading strategies, the test of the round-figure support looks imminent. However, the bulls might have another attempt to reverse the price action, or at least draw a rebound the words to the closest resistance level at 1.1050. Such a whipsaw might be an attractive entry point for those traders who missed the opportunity to open short positions at the beginning of the week. Nevertheless, the sell-and-hold strategy is still reasonable is the bearish momentum is robust and there are no signs of bullish reversal nor saturation of the downtrend. Given the large trading volume of the currency pair, it would be hard to imagine EUR/USD moving for more than 100 pics in one week. Therefore, a reasonable target to take profits from short positions is placed at 1.0954, the local bottom charted on October 8th.
USD/JPY Weekly technical forecast: Bearish
Although the pace of decline of the USD/JPY currency pair was quite impressive, the long-term technical sentiment remained positive. So the main question is in the depth of current retracement and the time when is it going to come to the end. So far, USD/JPY went off the local top or almost 100 pips, finishing the trading week at 109.28. But the daily chart setup shows that the pair didn't even reach the nearest double support level consisting of the top of the Ichimoku cloud and baseline curve. At the same time, the leading span maintained the bullish surplus, which leaves good chances for the uptrend to continue in the medium-term perspective. However, given the recent bearish momentum, the correction might continue, offering a more attractive price for long positions. The main threshold, from a technical analysis point of view, is a mark of 109.00. If sellers were able to push the rate below that support, then traders would notice a deeper correction towards the lower band of the cloud. Otherwise, in case of a bounce back up from the support, the bulls would regain the momentum and take the market under control. So it is important to monitor the price action during the upcoming week to adjust forecasts for the nearest future.