Global equities recovered
Global stock indices suddenly reversed the price action, recovering most of the previous losses caused by the coronavirus in the second half of January. Besides attractive price levels revealed after the bounce off the recent peak, stronger-than-expected corporate earnings reports published by a number of leading companies and robust macroeconomic data released in the United States, helped investors’ greed to overshadow the fear. The U.S. Non-Farm Payrolls report surprised investors by an unexpectedly large number of new jobs created in January - 225K, while analysts predicted only +160K. Also, equity investors appreciated the end of the political turmoil as President Donald Trump was acquitted after the Senate vote. Such a combination of drivers helped most of the global stock indices to soar, some of them even managed to rewrite all-time highs this past week.
The S&P 500 benchmark started climbing from the very beginning of the trading week, registering the largest one-day rally of +1.63% on Tuesday. As a result, the index added +2.91% to its value of 3327.0 points, renewing the all-time peak of 3358.9 points on Thursday. The Dow Jones Industrial Average printed a similar gain of +2.75% with the same performance on the daily chart. The tech-heavy NASDAQ Composite soared +4.27% to the highest weekly close rate ever (9394.0 points) thanks to several positive surprises from major companies that released their earnings reports for the fourth quarter of 2019.
Overseas indices were gaining strength as well. Japan’s Nikkei 225 gapped through the past weekend on the downside but surged +2.68%. The weekly candlestick performed a bullish engulfing and filled the gap from the previous week as well. German DAX 30 soared incredibly +4.10%, recovering all of the previous loss, but failing to rewrite the highest value ever. French CAC 40 added +3.85% to its value on the back of strong demand for local shares. The British FTSE 100 index managed to regain a part of the recent drop, adding only +2.5% to the value.
The greenback soared
The U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies soared +1.37%, charting the largest weekly gain since August 2019. Single European currency dropped 148 pips (four-digit quotes) or -1.34% versus the U.S. dollar, closing the week at 1.0946, just 6 pips above the lowest weekly close registered in September 2019. The Swiss Franc had an even weaker performance as USD/CHF surged 141 pips (+1.47%) to 7-weeks high of 0.9775.
The worst-performing currency among majors was the British pound as GBP/USD plunged 319 pips or -2.42%, breaching the round-figure support of 1.2900 for the first time in 9 weeks. Sterling was also sold off versus other majors including JPY, AUD, NZD and CAD. The USD/JPY currency pair reflected the bullish reversal of global stock indices and soared +1.28% (139 pips), closing Friday at 109.75, the second-highest rate since September 2019. The Australian dollar had an attempt to recover from the previous plunge, retracing to 0.6775 resistance, but failed to hold gains and dropped back to a multi-year low rate versus the greenback at 0.6673. NZD/USD dropped -0.88%, while USD/CAD gained +0.52%.
The price of gold failed to continue the bullish performance on the back of a sudden reversal of global stock indices and increased risk appetite. The yellow metal was testing a support level of $1550 per ounce in the middle of the past week, but retraced back to $1570, losing -1.23% as the result. After testing multi-month lows, WTI Crude oil price also had an attempt to reverse the recent trend, but positive achievements were limited by the price level of $52.16 per barrel. The sellers pushed oil to fresh lows at $50.40 by the end of the trading week. The price of Palladium printed slight gains of +1.47%, while Silver declined -1.74%.
EUR/USD weekly technical forecast: Bearish
The most popular currency pair in the foreign exchange market charted five consecutive daily candlesticks in the red after a failed test of the 1.1100 resistance in the last trading day of January. On top of that, EUR/USD headed towards the lowest daily close rate noted on September 30, 2019 - 1.08986. With only 48 pips left to go, a test of the multi-year low looks imminent for the week ahead. The daily chart setup below suggests that the real target for the bears is placed even further. EUR/USD could drop as low as 1.0830/50 this month and here is why.
The graphical analysis shows that the horizontal static support might act as just an intermediate obstacle for the sellers as the median blue dashed line could play a role of a magnetic line attracting daily average prices with a long-term perspective. The median line connects several peaks of the downtrend since January 2019 with several bottoms of bullish retracement periods (June and November). As long as the sequence of higher lows has been breached this past week, the pair is expected to come back to the long-term descending channel with a target of 1.0830/50 as initial support and/or consolidation range.
The technical sentiment is extremely bearish. EUR/USD failed to breach the exponential moving average with a period of 89 days, which acted as the resistance curve. Thus, the recent bullish swing towards 1.1100 was nothing but a technical retracement aimed to reload oversold conditions and renew the selling pressure. The Relative Strength Index with an extended period of 21 days confirms that suggestion as the indicator performed a classic bounce-by-trend pattern with the peak value below the 50% line (see red arrows on the chart and in the indicator’s window). Besides, the MACD trend indicator maintained the bearish bias as the histogram did not cross the zero level from below, while both lines remained in the bearish territory, extending the negative surplus. The sell-and-hold trading strategy looks attractive for swing traders, while short-term approach might look for short-term upside whipsaws for fresh short positions.
GBP/USD weekly technical forecast: Bearish
The British pound was the weakest currency among majors this past week. After failing to breach the round-figure resistance of 1.3200, GBP/USD dropped more than 300 pips, coming through several support levels as a hot knife goes through butter. The most significant achievement, from a technical analysis point of view, was the breakout of the recent bottom at 1.29359 charted on December 23. Since the flag pattern is not in play anymore, the pair could form a new descending channel marked by two parallel trend lines on the daily chart setup below.
According to the graphical analysis, the uptrend started in August last year is not over yet. GBP/USD could face multiple support levels before completing the bearish reversal. First, the pair had only entered into the sideways consolidation range noticed in October-November with the base at 1.27714. If the bears were able to breach it, then the ascending green trendline could act as the level for postponed buy-orders coming from real-money accounts and long-term buyers. The crossover of all three lines highlights a strong support range at 1.2717/34, which might be a tough nut to crack for the bears.
Technical indicators are in favour of a bearish continuation as Chaikin oscillators crossed the zero line from above, signalling a beginning of the distribution period. However, the Average Directional Index shows quite a weak momentum as its mainline is still below the threshold, which might limit the depth of the bearish continuation. Therefore, it is recommended to take profits in the support range mentioned above and even get ready to a possible bullish reversal if appropriate signals appeared on the daily chart. Sterling loves false breakouts, so traders should not be surprised to see GBP/USD back above 1.3000 in the week ahead.