Global equities kept recovering
This past week was one of the least volatile in the recent turmoil. Major stock indices kept recovering from the brutal sell-off caused by the pandemic of coronavirus. Several macroeconomic reports were worse than expected, but that negative scenario for the global economy seems to be already priced in by the market players and current quotes.
For instance, US retail sales dropped -8.7% in March, the biggest monthly decline in history, while the labour market reported more than 5 million new jobless claims with a total number of people out of work exceeding 20 million. China’s economy has been hit hard in the first quarter as the GDP plunged -6.8% year on year. Nevertheless, most of the leading stock indices managed to print gains this past week.
The S&P 500 benchmark added +3.18% to its value, finishing the trading week at 2878.0 points, which is above several key technical resistance levels. Tech-heavy NASDAQ Composite soared +7.02% and tested the psychological round-figure value of 9000.0 points for the first time in seven weeks. The Dow Jones Industrial Average climbed +2.25% to 24275.5 points.
Overseas indices gained strength but the pace of growth was more moderate. Japan’s Nikkei 225 rose by +2.05% on the back of severe restrictions in terms of quarantine in the country. European indices were less optimistic as the economy is expected to have a delay in the restart. So German DAX 30 added only +0.34% to its value, while the weekly candlestick had a long downside shadow. French CAC 40 gapped on the upside through the past weekend but failed to hold gains and slipped -0.17%. British FTSE 100 slid -0.74% in similar price action.
The US dollar index was flat
The world’s reserve currency had a directionless trading week with whipsaws on both sides. The trading range was also narrowed as the volatility seems to be easing for a third straight week and currency traders did not notice the panic buying of safe-havens. The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies gained +0.24% but the pace of growth was dissimilar.
The single European currency weakened versus the US dollar after a failed attempt to test the crucial technical resistance of 1.1000. EUR/USD slid -0.57% or 62 pips and closed the week at 1.0874. The British pound, in contrast, kept strengthening versus the greenback as GBP/USD climbed +0.38%, finishing the trading week at a six-week high of 1.2501. The Swiss Franc was flat. Concerns about the Japanese economy to have worse times ahead did not help USD/JPY to reflect the optimistic trading of global equities and the pair declined by -0.85% or 92 pips to 107.55.
Commodity currencies failed to continue the impressive recovery of the previous week and charted quite tight ranges with a mixed bias. The Australian dollar gained +0.24% versus the greenback, the New Zealand dollar slid -0.80%, while the USD/CAD currency pair had a whipsaw toward 1.4200 but ended the week at 1.4003, gaining only +0.33%.
Emerging markets currencies kept weakening despite the overall risk appetite in the financial markets: USD/MXN +1.54%, USD/ZAR +4.38%, USD/TRY +3.50%, USD/RUB +0.32%.
Metals were mixed, the oil kept plunging
The price of gold had an impressive rally towards the 7-years high at $1746 per ounce at the beginning of the past trading week. However, the action reversed Wednesday and the yellow metal erased all of the gains, closing Friday at $1683 per ounce (+0.15%). The price of Silver dropped -1.41%, while Palladium remained flat after whipsawing to $2305 per ounce.
Global oil producers finalized the agreement to cut oil production by a historically largest volume and Saudi Arabia officially ended the price war with Russia, however that did not help the oil market. Most of the storage facilities are getting full, while the global consumption does not show signs of recovery so far. On top of that, US weekly crude oil inventories jumped to 19.25 million barrels, underlining the weak demand. So WTI Crude oil price plunged -20.43% to $18.44 per barrel, the level never seen in 18 years. Brent Crude oil price dropped -11.01% to $28.30 per barrel but remained above the recent bottom.
EUR/JPY weekly technical forecast: Bearish
As the Euro was weakening and the Japanese yen was strengthening versus the US dollar, the EUR/JPY cross rate printed a sharp decline of -1.40% or 166 pips, heading to 3-year lows. The pair closed the past trading week slightly below the round-figure support of 117 yens per euro (116.94) and only 10 pips above the bottom in August 2019. The daily timeframe has a huge descending triangle pattern with the current rate extremely close to breaking the horizontal bottom, which could lead to a bearish acceleration in the week ahead. There were four attempts by the bears to breach the range of 117.00/116.26, all failed so far. But if EUR/JPY continued declining and closed the upcoming week below 116.26, then it would trigger the pattern to work out the distance of 700 pips further south.
The daily chart setup below shows a strong sell-signal occurred on April 10 and confirmed last Monday. The thing was that EUR/JPY failed to break through the Ichimoku Base Line, which acted as the resistance curve during the bullish rebound (see the red arrow on the screenshot). The leading span maintained the bearish surplus, so the trend indicator confirmed the bearish signal. As a result, the pair dropped below the Conversion line, pointing to the renewal of the selling pressure.
The Average Directional Index remained bearish as -DI and +DI lines did not perform the bullish crossover. Although the ADX main line is still below the threshold, signalling a comparatively weak momentum and low volatility, the indicator promises further bearish action.
The momentum oscillator retraced to the level of 0 after bottoming out, but the 10-days period shows an uptick in the bearish activity, which could lead to more short positions in the market. It’s recommended to hold shorts at least until the horizontal static support line at 116.23. A breakthrough trading strategy is also considerable. On the other hand, the bulls might try to reverse the downtrend at around the range mentioned above, so traders should keep their stop-loss orders tight and monitor intraday technical sentiment.
WTI Crude Oil weekly technical forecast: Bearish
The price of oil kept plunging this past week and broke through the psychological round-figure support level of $20.00 per barrel. The weekly decline exceeded -20%, while the technical outlook is extremely bearish on all timeframes. Below is a long-term monthly chart for WTI Crude and it shows that the current month has high chances to breach the bottom seen in November 2001 and January 2002 ($19.44 and $19.48 per barrel, respectively). If April closed below that mark, then the oil market would enter a long-term period of extremely low prices with a potential recovery not earlier than in 2021.
Another chart below shows the daily timeframe with the same technical setup. We wrote about a strong signal to open more short positions for WTI Crude oil last week. The thing is that the recent bullish recovery failed to lift the price of oil above the middle line of Williams Alligator, while all of the three lines remained in the correct order to proceed with the selling pressure. Besides, the MACD histogram is erasing its positive surplus and the lines are about to perform another bearish crossover. The fast and sensitive Relative Strength Index with a period of 14 days kept declining, while the oversold territory is not reached yet. That all means that the bearish potential is not exhausted yet, and we might see further weakness for the price of oil next week.
From a technical analysis point of view, we should have a look at historical levels never seen in many years. Mid-term targets and price levels to consider taking profits are as follows: $18.66 (already breached) - the lowest weekly close in January 2002; $17.12 - the bottom in November 2001; $16.36 - the top in September 1998 and $10.65 - the bottom in December 1998.