Global equities failed to continue the recovery
Financial markets players were focusing on several key fundamental events this past week. Essential macroeconomic data has been published, showing that experts had underestimated the negative impact of the coronavirus pandemic for the world’s leading economies. GDP figures were worse than expected in Japan, the United States and Eurozone in the first quarter, which means that the global economy has not reached the bottom of the freefall yet, and investors could expect more bad news to come. It was also extremely important to see what steps the largest Central Banks can make to save economies from the crash. The US Federal Reserve, the European Central Bank and the Bank of Japan announced additional supportive measures as the GDP contraction in the first quarter was unprecedented in recent history. However, that was not enough to convince equity investors, and major stock indices failed to maintain the bullish recovery momentum, losing most of the mid-week gains.
Major US benchmarks were gaining strength in the first half of the trading week, testing 8-weeks highs. However, the disappointment in macroeconomic data caused a U-turn on price charts, and stock indices dropped back to where they started the week. For instance, the S&P 500 index was trading at weekly highs of 2972.70 points on Wednesday but failed to hold gains and slipped back to 2830.40 points (-0.25% weekly). Tech-heavy NASDAQ Composite was leading the rest of the equities market, adding +4.36% on Wednesday, but reversed the price action and finished the trading week with losses of -0.63%. The Dow Jones Industrial Average had a similar pattern with a long upside shadow on the weekly timeframe and the weekly result of -0.15%.
Japanese Nikkei 225 index tested the weekly resistance but lost most of the mid-week gains as well (+1.86%). German DAX and French CAC 40 indices appreciated additional supportive measures by the ECB and managed to lead the global equities market, adding +3.30% and +4.07%, respectively. British FTSE 100 lost -0.77% of its value this past week.
The US dollar index plunged
The world’s reserve currency was hit the hardest given the worse-than-expected US GDP report in the first quarter. The leading global economy contracted by -4.8% quarter on quarter, while the market forecast was -4.0%. As a result, the US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies dropped -1.61% to 98.68 points, the four-week low. Forex traders sold the USD off across the board, although the pace of growth was different for other currencies.
The single European currency gained +1.44% versus the US dollar. EUR/USD breached several intraday resistance levels and reached a crucial technical pivot point at 1.0979. If the bulls were able to finish the upcoming week above 1.0990/1.1000, then the long-term technical bias would switch to bullish, signaling a reversal pattern on daily and weekly timeframes.
The British Pound rallied to 1.2644 versus the US dollar on Thursday, but retraced back to 1.2495 on Friday, adding +1.05% or 129 pips to the exchange rate as a result. The USD/JPY currency pair was vulnerable to dovish comments of the Bank of Japan and dropped -0.55% or 59 pips to 106.95 this past week. The Swiss Franc reflected the strength of the Euro as USD/CHF declined by -1.19% to 0.9614.
Commodity currencies were also on the track of recovery versus the greenback initially, but the bearish reversal of global equities influenced a similar U-turn in daily charts of AUD/USD (+0.42%), NZD/USD (+0.75%) and USD/CAD (-0.07%). The risk appetite drove emerging markets currencies to three-weeks highs, however, FX traders changed their minds, selling Mexican Peso, South African Rand and Russian Rouble versus the US dollar again. So the bearish action was quite short-lived and limited for USD/MXN (-1.49%) and USD/ZAR (-1.31%), while USD/RUB gained +1.31%.
Metals declined, oil recovered
The price of gold was rather volatile, changing the trend direction several times this past week. The initial action was directed towards the technical support level at $1693 per ounce. There was an attempt to continue the long-term uptrend on Thursday when the yellow metal bounced up to $1721 per ounce. However, the bears took the market under control and pushed the price of gold to Friday’s intraday low at $1670. Another sharp rebound followed and XAU/USD finished the trading week at $1698 per ounce (-1.69% weekly). The price of silver declined by -1.78%, while Palladium lost -6.20% of its value.
WTI Crude oil has found a local bottom at around $10 per barrel this past week. Oil traders stepped in with heavy-volume demand and reversed the price action. As a result, WTI Crude oil price gained +13.75%, closing the week at $19.20 per barrel. Brent Crude Oil price rallied +20.97% to $26.59 per barrel.
USD/RUB weekly technical forecast: Bullish
The sharp rebound of oil prices did not help the Russian Rouble to maintain the recovery bias. USD/RUB was declining to a 3-weeks low at 72.6365 on Wednesday, but the bulls lifted the exchange rate by 3.30% in two-days bullish rally towards the weekly close at 75.3756. The lack of further bearish continuation and the sequence of higher lows on the daily timeframe, as well as the long downside shadow on the weekly candlestick point to a possible end of the bearish retracement and renewal of the uptrend.
The daily chart below has a double-bottom bullish reversal pattern. The second low charted on April 29 is higher than the previous low on April 14 (see two green arrows on the price chart). Both reversal points are placed above the 55-days exponential moving average that keeps acting as the support curve. Until the exchange rate is trading above the curve, the uptrend continuation is likely.
Two oscillators confirm the bullish bias. The Relative Strength Index with a period of 13 days reflects the double-bottom pattern and its line is currently coming above the bullish threshold of 50%, heading north. Stochastic RSI oscillator, which is more sensitive to short-term fluctuations, had a bearish reversal signal, pointing to a retracement southwards (red arrow). However, the bearish rebound has come to the end as Stochastic RSI performed the opposite reversal and started bouncing up.
Our preference is long positions with the nearest target at 77.3248 roubles per dollar, which is the horizontal static resistance line, reflecting the recent daily high close rate charted on April 21. This line is also a pivot point for the mid-term analysis, suggesting that if the bulls were able to break it through, then the upside momentum could accelerate the buying pressure. Otherwise, sideways consolidation might take place, so it would be better to take profits from longs around there.
Gold weekly technical forecast: Bullish
The price of gold retraced from multi-year highs this past week, however, the medium-term technical sentiment remained bullish. The bears used to test several key support levels, trying to test the bulls’ strength. The price action showed a sustainable demand for the yellow metal in the range of $1670/90 per ounce as the sellers could not break it through several times. That underlines that the market players are keen on using the buy-dips trading strategy, opening longs on bearish rebounds of the price.
From a technical analysis point of view, the fact that the daily chart (see below) does not have a daily close rate below the 21-days exponential moving average proves that uptrend still has chances to continue. The price of gold slid to the range between the Ichimoku Conversion line (resistance currently) and Baseline (extended support level), promising further sideways consolidation. However, the leading span remained bullish with a future support level at $1678.19 that hasn’t been breached as well. The Bollinger Bands %B oscillator has a bounce-by-trend pattern with the current value above the crucial threshold of 50%, which is a bullish sign as well. Therefore, our preference is to keep buying gold on bearish whipsaws, placing tight take-profit and stop-loss orders.