Global equities failed to recover
Most of the major stock indices had an attempt to keep the recovering pace and maintain the wave of optimism. Global investors and traders had a suggestion that the bottom of the market crash is near, while unprecedented supportive measures by G7 governments should help the global economy to ease the negative impact from the recession. However, the lack of bullish momentum caused another wave of selling in the middle of the past week, and major benchmarks reversed the price action, finishing the trading cycle in the red. On top of that, the US Non-Farm Payrolls report was unexpectedly weak, reporting a negative number of -701K new jobs created. This data suggests that the worse is still yet to come and traders could witness more selling pressure on global equities.
The S&P 500 benchmark had a promising start of the trading week on Monday as the index rallied +3.44% in one single day, trying to keep the recovering bias. However, two next days of tough selling (-6%), a short-term rebound on Thursday and sell-off on Friday caused the overall weekly negative result of -1.78% with a long upside shadow on the weekly candlestick. On the one hand, the volatility eased a bit as traders did not notice such sharp price swings as it used to happen during the tough weeks in March and the S&P Volatility Index (VIX) dropped compared to the previous period. On the other, the inability of bulls to keep the retracement momentum points to complete dominance of bears in the market so far. Tech-heavy NASDAQ lost -0.45% of its value, while the Dow Jones Industrial Average slid -2.44%.
Overseas indices had a worse performance this past week. Although there was a similar attempt to continue recovering, most of the key indices dropped back into the red zone. So Japanese Nikkei 225 had a negative weekend gap and kept plunging during the trading week, closing Friday with a result of -8.09%. The third world’s economy is struggling from the slowdown of exports, while the government’s measures fail to calm equities investors down. German DAX 30 slid -1.11%, French CAC 40 plunged -4.53%, while British FTSE 100 declined by -0.98% this past week.
The US dollar index surged
The greenback’s role in the world’s reserve currency was in the market’s focus again this past week. The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies soared +2.42%, changing the trend direction for the third time in five weeks. Such a volatile performance underlines the market’s uncertainty in terms of the rate of a negative impact for the global economy caused by a coronavirus and confirms the previous suggestion that the bottom of the meltdown is far from here. DXY was rising for four days out of five last week with the only daily candle in the red on Tuesday. This also might point to the fact that the US Federal Reserve’s measures to pump enormous liquidity to the market and ease the panic demand for US dollars across the board did not have a long-term impact.
The single European currency gave the largest contribution to the growth of the dollar index as EUR/USD plunged -3.01% or 336 pips (four-digit quotes). The pair breached several intermediate technical support levels and closed the trading week at the second-lowest rate since April 2017. The British pound failed to keep recovering and slid versus the US dollar, but the pace of the decline was comparatively low as GBP/USD lost only -1.50% of the exchange rate. The Swiss Franc reflected the global demand for the US dollar as USD/CHF surged +2.77%.
The Japanese yen was trading in a tighter range compared to other majors. On the one hand, USD/JPY traditionally reflects the price action of equities and it should have dropped, given the price action of stick indices. However, the overall strength of the greenback helped the pair to gain +0.48% despite the long downside whipsaw toward the support level of 107.00 yens per dollar.
Commodity currencies were among underperformers this past week. The Australian and New Zealand dollars lost -2.83% of their value versus the greenback, while USD/CAD climbed +1.54%. Therefore, such cross rates as AUD/CAD and NZD/CAD maintained the recent bearish momentum. Emerging markets currencies had another tough week of hard selling pressure. Turkish Lira (USD/TRY +4.34%), South African Rand (USD/ZAR +7.90%) and Mexican Peso (USD/MXN +7.10%) were among the worst performers on the back of huge capital outflow from those countries.
Commodities were mixed
The price of gold had a bearish rebound toward the support mark of $1568 per ounce at the beginning of the past trading week. However, the bulls stepped in with heavy-volume buying and the yellow metal left only a long shadow on the weekly candlestick, recovering all of the mid-week losses. The price of Silver remained flat as well. In contrast, the price of Palladium failed to maintain the bullish momentum and dropped -3.59% as a result.
The most exciting price action was noticed in the price of crude oil. The news headlines were full of optimistic messages that Russia and Saudi Arabia are about to stop the price war with the support of the US President Donald Trump, announcing negotiations if not deal between the two largest oil producers. Some of the analysis even started to forecast the volume of possible cuts in the daily oil output, naming a decline of 6, 9 or even 10 million barrels per day. Oil traders and investors comprehended the news as extremely positive for the market, rushing to buy oil futures. As a result, WTI Crude and Brent Crude Oil prices soared +32.06% to $28.79 per barrel and +39.39% to $34.89 per barrel, respectively.
However, the weekend did not confirm such an optimistic outlook as Russian and Saudi officials continued blaming each other, while the OPEC+ meeting was postponed. Thus, negative gaps are very likely for the price of oil right on Monday open, while the volatility is expected to remain extremely high for the whole week ahead.
EUR/USD weekly technical forecast: Bearish
Euro declined versus the US dollar for five days in a row, losing more than 3% of the exchange rate this past week. The bearish price action came in contrast to the past week, creating another reversal of the trend direction recently. That helped the technical analysis to highlight the local resistance level as the bullish rebound was limited by 38.2% Fibonacci Retracement level at 1.1157 (see the red arrow on the daily chart setup below). The bearish reversal and further downside action helped EUR/USD to breach several technical support levels including 1.1068 (50% Fibo), 1.1000 (psychological round-figure level), 1.0996 (34-days simple moving average), 1.0972 (50% Fibo) and 1.0853 (78.6% Fibo). The pair closed Friday at 1.0805, promising further losses in the week ahead.
The technical sentiment shifted back to negative on the daily timeframe. The MACD trend indicator turned bearish as the histogram dropped below zero, while both lines performed a bearish crossover. The Relative Strength Index with a period of 13 days fell below the middle line, dividing the bullish and bearish momentum, and headed south, reflecting the bearish price action. Therefore, the three-year bottom is in focus for EUR/USD in the week ahead, and the bears might not stop before retesting the lowest daily close rate of 1.0692. On top of that, if the second test of the horizontal static support was successful, then the market players would eye the 161.8% Fibonacci extension of the recent bearish rally from 1.1440, which comes at 1.0228 dollars per euro. Although this might be a long-term target for the bears, the long-term downtrend could resume in the upcoming week, adding the selling pressure on EUR/USD.
WTI Crude Oil: Bearish
Despite the impressive rally of more than +30% this past week, the price of oil is still in the long-term downtrend, according to the long-term technical analysis. The daily chart setup shows that since the bearish breakout of the 30-days simple moving average, WTI Crude remains below the resistance curve, and the recent rebound hasn’t reached the line yet. That might point to a deeper bullish retracement in a short-term but does not guarantee the long-term reversal of the downtrend.
Fast and sensitive Stochastic RSI oscillator reflected the sharp rebound of the oil price as both lines crossed each other headed north. It’s important to note that the bullish reversal occurred above the middle line, which confirms the previous suggestion of potentially higher prices in the week ahead. Another bullish sign is that the price of black gold breached the Ichimoku Conversion line, which acted as the nearest resistance curve during the downtrend.
However, the price failed to breach the bottom level of the leading span, which is a sign of weakness. Bullish whipsaws are possible even up to the Ichimoku Baseline at $33.97 per barrel, which might give a brilliant opportunity for the bears to reenter the market, using the mean reversion trading strategy. Coming back to the 30-days simple average (currently at $31.73), the past performance during the downtrend shows several failed attempts to test that resistance curve from below (see red arrows on the chart), and all of them ended up with another wave of the sell-off.