Global equities kept plunging
The panic continued weighing on traders’ and investors’ sentiment across the globe. Most of the financial markets are sliding into a tough crisis due to risk aversion. Emergency steps by most of the leading world’s regulators, including the US Federal Reserve, the Bank of England and the European Central Bank, did not calm investors down despite unprecedented supportive measures. The trading week started with an urgent announcement of the Federal Open Market Committee in the United States on Sunday. The regulator slashed its interest rates by 100 basis points, cutting them to almost zero and promising massive injections of funds into the financial system to keep liquidity. The Bank of England lowered interest rates to the lowest level in history, while the ECB pumped enormous amounts of cash. There were several upswings and bullish rallies in the global equity market but the overall trend of selling high-yield assets remained.
US stock indices suffered the worst trading week since the financial crisis in 2008. So the S&P 500 benchmark dropped -14.80%, although there were several rallies of more than +4% intraday. The cost of the index declined to 2300.6 points, the level never seen since February 2017. The total crash of the benchmark value exceeded -36% counting from the peak value noted just five weeks ago. Tech-heavy NASDAQ Composite plunged -11.51% this past week, while the Dow Jones Industrial Average lost -17.30% of its value. Overseas indices had a similar performance. The Japanese Nikkei 225 declined by -5.04%. German DAX 30 and French CAC 40 lost -3.28% and -1.64%, respectively. British FTSE 100 plunged -11.73%.
The US dollar index strengthened
The US dollar index surged to the highest weekly close rate (101.95, +3.03%) since February 2017. In contrast to several previous weeks when the foreign exchange market players were selling the greenback versus major currencies and buying it versus emerging markets, this past week brought a total dominance of the world’s reserve currency. Even the Japanese yen and Swiss Franc, traditional safe-havens in the FX market, weakened versus the US dollar despite the total sell-off in stock indices. ON top of that, the US Treasury had to send several aeroplanes abroad to deliver cash and calm down the abnormal demand for the greenback across the globe.
The single European currency failed to hold the bullish momentum and dropped -3.68% or 409 pips versus the US dollar. That was the largest weekly plunge of EUR/USD since May 2015. The exchange rate was trading above 1.1200 at the beginning of the week but finished Friday below 1.0700, so the trading range was even wider, considering the exceptional volatility. The British Pound was one of the weakest currencies among majors as GBP/USD plunged -5.11% this past week, enlarging the two-weeks decline to more than -10%. Sterling was testing the resistance level above 1.3200 two weeks ago, Friday’s close was noted below 1.1650, while the weekly bottom was 1.1411. Even the consequence of the Brexit saga did not have such a dramatic outcome for GBP/USD as the lowest rate in October 2016 was seen at 1.1649. As a result, Sterling entered into an unknown zone in terms of the technical analysis.
USD/JPY added +2.69% or 290 pips to the exchange rate, coming back to the top level of the uptrend started in August 2019. USD/CHF soared +3.54% or 337 pips, recovering most of the losses since December last year. The Australian dollar renewed multi-year lows at 0.5508 as AUD/USD plunged -6.18%, the New Zealand dollar lost -6.29% of the cost versus the greenback. USD/CAD surged +3.93% with a whipsaw to the highest rate noted in January 2016.
Emergency markets currencies were hit even harder. Here are several figures to build a general understanding of how huge the capital outflow is in developing countries: USD/MXN +11.41% to 24.4122; USD/ZAR +8.62% to 17.5975; USD/RUB +10.47% to 80.0139.
Commodities sold off
The price of WTI Crude oil continued the freefall, closing the trading week at $23.40 per barrel, the lowest level since March 2002. Brent oil price dropped to $25.30. Both types of black gold lost almost 30% of their cost this past week. Market players and information agencies report that the global capacity of storing crude oil is rapidly coming to an end, while the cost of oil tankers freight surged ten times compared to usual periods.
The price war between Saudi Arabia and Russia kept escalating as most oil producers increased the daily output significantly, while the global demand dropped. Some traders tried to take advantage of the cheap oil and bought it on Thursday with a hope to resell it later when things will get back to normal. As a result, WTI crude surged +23.96% in one single day but charted a dramatic U-turn on Friday, falling back to the previous bottom. Some analysts predict that oil prices could drop as low as $5 per barrel.
Precious metals were sold off as well. The silver price was hit the hardest (-14.47%), while Palladium lost -7.95% of its value and Gold slid -2.03%.
USD/RUB weekly technical forecast: Bullish
The USD/RUB currency pair broke several records this past week. First, the pair charted the largest weekly gain of +10.47% in history. A similar performance was noted in August 2015 when the price of oil was in a strong downtrend. Second, USD/RUB had the highest weekly close rate ever (80.0139). In February 2016, Russian rouble was also sold off and even had higher peak values, but there was no weekly close at such a high rate. Third, the pair had a second-top rate of 82.90 roubles per dollar.
As far as the price action is almost unprecedented and extremely volatile, we need to make an outlook of several time frames before predicting further direction. Of course, many things depend on fundamental and psychological factors as such strong trends do not appear on an empty surface and there is a strong correlation between USD/RUB and oil prices. However, technicals also matter as most of the currency traders keep an eye on the mathematical background of the action.
The weekly chart below shows that the bullish momentum is growing as the size of weekly candlesticks is growing. The previous performance shows that the bulls might not stop buying the pair before retesting the all-time high rate at 85.9493 noted in January 2016. Given the recent price action, this event should happen sooner rather than later, and a bigger question is how far the rate would go north if the horizontal static resistance was breached.
Another powerful indicator confirming the previous suggestion is the Average Directional Index. The mainline has just crossed the threshold from below, pointing to a strong and growing bullish momentum with a lot more room to go north before the buying power would be exhausted. Previous rallies show that the ADX main line can go much further before reversing. Another bullish indicator is the surplus between -DI and +DI lines, which is still growing despite the fact that USD/RUB is getting extremely overbought. All that points to a high likelihood of the bullish continuation rather than a bearish reversal.
The daily chart below shows how the mean reversion trading strategy can be effective during such sharp price swings. Ichimoku Cloud trend indicator and Stochastic RSI oscillator represent an effective combination of technical instruments to apply the buy-dips trading method. The sequence of the analysis should maintain three stages before entering the markets: wait for the rate to peak and reverse, take profits there, wait for the counter-trend correction to get exhausted near short-term support levels and buy the pair again on an opposite crossover and downside whipsaws.
WTI Crude Oil weekly technical forecast: Bearish
We already mentioned our midterm target for the current downtrend in the price of oil before. This past week’s reversal at $20.00 had nothing but a psychological effect of the round-figure level. The technical analysis shows that the real horizontal static support, taking into account historical performance, comes at $18.06 per barrel. Given the inability of bulls to push the price back above $30 last Thursday, despite the double-digit rally, confirms the suggestion that a retest of the support is just a matter of time and the bears should get there as early as in the week ahead. A more important question is what might happen if the sell-off continued below that mark? The only data technical analysis can operate with is the historical performance and we can see their several bottoms at $16.55, $13.82 and $10.76. All of the figures above come from old times before even the internet era was born (1986-1998).
The short-term technical analysis shows that the downtrend would not reverse just like that, so the only reasonable trading strategy is to keep selling oil on bullish rallies, using the sell-highs trading strategy. The daily chart below points to several profitable examples of this approach as despite the strong downtrend, short-term bullish retracements occur. Although the MACD histogram started edging higher and the Relative Strength Index has a preliminary sign of a bullish divergence (higher lows), the overall outlook remains extremely bearish.