A number of shifts happened for the currency markets this past week. Technical sentiment has changed for the vast majority of currency pairs, while others kept the same price action as before. The trading week ahead is going whether to confirm these changes as long-lasting or get the markets back on track for the previous trends. From the long-term perspective, these changes are not so crucial and can be considered as the technical correction. Although, some of the retracements had signs of deep and continuous, as several important levels have been breached and some of the technical indicators turned to an opposite direction.
Although the U.S. dollar index, measuring the volume-weighted basket of six major currencies versus the greenback, had bullish attempts to break 96.00 resistance in first two days of the past trading week, it has been declining afterwards. The chart below shows an obvious double-top bearish pattern with lower highs which suggests a bearish reversal and the bulls’ weakness. Despite the descending formation, we would not recommend selling the index, as the decline has been supported by the 50% Fibonacci retracement level (94.57, weekly low) of the upside swing from September 20 to October 3. Friday’s pullback to 38.2% Fibo confirms that the bulls’ are still active, and they will not give up important support levels without the fight. The recent test of the Exponential Moving Average (period 55) failed, and the price stuck in the tight range of 94.57/95.23 (weekly close). The technical outlook suggests a consolidation range without any clear direction so far, until 93.86 low (support) and 96.12 high (resistance) hold. A breakout through any of these levels would indicate further medium-term development for DXY.
The single European currency continued to post new weekly lows (1.1429) versus the U.S. dollar this week. We would have stayed bearish on the pair, though the depth of the recent bullish retracement makes us doubt, and here is why. Firstly, the bullish correction on October 05 had a clear sell-signal, as the bulls failed to break through the Simple Moving Average (period 34), posting the local high at 1.1594. That static resistance has been breached, as EUR/USD went up to 1.1610 (weekly high), and higher highs pattern is not something to deal with in the bearish market. Secondly, SMA34 has been clearly breached by the prices. Thirdly, the latest bearish price action has formed the ‘Head-and-shoulders’ reversal pattern with the neckline indicated on the H4 chart below. The bullish reversal has been confirmed by both MACD and RSI, signalling divergences. The horizontal support at 1.1545 came back into play, the same way it happened on September 4 and 10. A real test for the bulls will be 1.1650 mark, as it completes the bullish reversal and turns medium-term perspective as positive for EUR/USD gaining strength.
We are still bullish on GBP/USD, despite the recent pullback from the local weekly high (1.3258) which eliminated two-thirds of impressive bullish price action by sterling (1.3151 weekly close). The H1 chart below shows the ascending channel, and we comprehend the latest 100-pips slide down as nothing but technical correction caused by the intraday traders taking profits. This decline gives an attractive opportunity to refresh long positions for traders who missed the chance to jump in before. The trendline support comes in line with the 133-hours simple moving average. Fast RSI oscillator is off the oversold levels, having a slight bullish divergence on cards. Further temporary downside whipsaws are possible and we would not hesitate to use that brilliant opportunity to add more volume for GBP/USD longs, taking in count the bullish reversal pattern on larger timeframes. Local high at 1.3299 represents the near-term target for the pound bulls. Breaking it through would open the door for next levels near 1.3474 (June 7 highs).
Japanese yen gained strength versus the U.S. dollar after forming the local top at 114.55. Although the daily Ichimoku cloud indicator is still bullish with all of its lines in the right order, two technical factors make us assuming that further weakness is possible for USD/JPY. The span itself started to narrow, coming off the largest swing since August. The price has breached both support lines, closing the week between the baseline and the cloud. The trendline holds as the support but dollar-yen might test the upper range of the cloud as the next support level and the momentum near 111.48 would determine further direction. However, the long-term technical outlook remains positive for the pair. We would stay away from any trading decisions unless the uptrend will be confirmed by a bullish bounce or a deep downside shadow on any daily candle.
First signs of a potential bullish reversal have been seen for AUD/USD on the H4 chart below. The series of higher lows; the bears’ unability to keep pressuring the price which was confirmed by the long downside shadow on October 10; the bullish continuation signal by the Bollinger Bands indicator due to three consecutive closes above the upper line and the middle line as support - these are technical factors that suggest further strength for the pair. The key level to watch next week is 0.7150. If it will be breached by the bulls, then we would consider going long on AUD/USD, as Aussie has been oversold for a while and a deeper retracement could take place.
One of the most volatile pairs (and profitable to trade on) in the currency market was USD/ZAR. South African Rand soared, pushing USD/ZAR for the four-hours impressive plunge of 340 pips after the pair met heavy selling around 15.0000 level. The MACD indicator was signalling the serial bearish divergence which is a strong sell signal, and it worked out perfectly. The losses were extended to 14.4200 (weekly low) after the bulls failed to recover. More weakness is likely, the support target is 14.3000, as the descending bearish channel is weighing on the pair.
Crude Oil WTI: Neutral.
Despite the weakness of the commodity price, the black gold is attractive for long-term buy-and-hold trading strategy. The price of Crude Oil WTI plunged as low as $70.55 per barrel last week on heavy selling. But the squeezed H4 chart below shows how the ascending support coming through these levels together with long-term Simple Moving Average (period 244 is equal to 3-weeks average). We would recommend buying the asset for those traders who can allow themselves to withstand possible downside whipsaws and wait for a couple of weeks before the uptrend will reinforce.