A complete reversal was noticed in global stock indices with a bullish engulfing candlestick pattern on weekly charts this past week. U.S. equities led the gains with S&P 500 strengthening for 5.13%, the best one-week performance since November 2011. The same impressive price action was seen in NASDAQ 100 (+6.69%) and Dow Jones Industrial Average (+4.82%). Despite the recent correlation with stock indices, U.S. dollar index had a mixed performance with a slightly bullish bias. So, Euro lost 0.20% of its value versus the greenback, USD/JPY gained 0.50%, while commodity currencies came back to growth: AUD/USD +0.92% and NZD/USD +1.48%. The British pound and Canadian dollar finished the trading week flat. Such shifts in the technical outlook for major currency pairs influenced more bearish momentum for cross-rates such as EUR/NZD and EUR/AUD. At the same time, AUD/JPY and NZD/JPY accelerated the uptrend. Emerging market currencies, precious metals and oil did not have the same impact from the last trading week of November, charting an uncertainty Doji candles on the weekly timeframes. The upcoming week will be crucial for the recent trend to whether to confirm its sustainability or underline the temporary technical retracement’s nature. Four trading weeks left till the end of the calendar year, and that might have an impact as the seasonal factor for major assets in the financial markets.
The bulls have made several technical achievements last week. S&P500 benchmark has breached the exponential moving average with the period of 21 days, MACD histogram turned bullish and its lines crossed each other, signalling a strong reversal pattern, RSI fast oscillator crossed 50% level on the daily timeframe. Besides the bullish engulfing candlestick pattern on the weekly timeframe, which we have already mentioned, the wider technical picture on the monthly chart might signal an end of the October’s retracement. The index pared almost a third of the monthly losses, bottoming at 2627.8 (lowest daily close price) and 2599.8 (lowest low since May 2018). Moreover, the latest close price at 2762.6 is higher than the intermediate low from October 15 (2743.6) and high from November 16 (2740.0), which is important for the bulls to proceed the recovery. The next resistance to check the recent bullish uptick is currently placed at the highest daily close in the bullish bounce from November 7 (2814.0). Once that level will be clearly breached by the daily close price, the technical outlook will come back to the long-term bullish trend. Until that is done, S&P500 is still in the retracement mode which suggests bearish whipsaws and downside spikes. We assume that a re-test of the breached resistance of EMA21 curve is likely, with fast RSI oscillator coming back to 50% level from upside. If the bulls managed to hold that defensive line, it would be the perfect level to join the party going long for equities. Otherwise, the market would come back to the bearish uncertainty.
The U.S. dollar index continued its uptrend, slowing down the momentum though. The bullish run continued in the beginning of the previous week with weekly highs reached on Wednesday at 97.54. The bullish retracement followed, however, the downside price action was supported by the exponential moving average with the period of 21 days, the same way it worked during the previous week’s bounce. The lowest rate of the index was posted at 96.63, as there comes the trendline which we showed several times in our previous articles. That simple graphical analysis tool works well since September 21, playing a role of an attractive level to refresh long positions. The fast RSI oscillator is also supported by a similar line and the recent bounce failed to reach the 50% level, which is a technical buy signal. We expect the index to appreciate further with the nearest target of the year-high at 97.69, the level charted on November 12. There is a bit of concern regarding MACD lines which are in uncertain correlation to the histogram’s negative performance. However, the indicator is far from its overbought levels and potential bearish divergences, at least until the static resistance mentioned above. The buy-and-hold trading strategy is applicable from the technical point of view.
The pair charted an asymmetric descending triangle on the daily timeframe. We’ve been expecting for the third phase of the bullish bounce to realize the key resistance levels and build the upper line of the triangle. EUR/USD gave a perfect entry level after the bullish retracement on Thursday, testing 1.1400 round figure. What’s interesting is that the best indicator for the pair is currently Stochastic RSI - a combination of two oscillators with default settings. If you look at two days when the pair tested the descending resistance line (blue), you will find that those days match a strong sell signal on Stochastic RSI indicator - the cross of its lines. The profit of 80 pips on one single day from the fresh short positions could be extended in the week ahead. We expect EUR/USD to test the lower range of the triangle and the lowest rate in 2018 - 1.1216 which suggests 100 more pips of the profit. Those traders, who missed that brilliant opportunity to join the party, could monitor intraday whipsaws towards 1.1340 if the market would be so kind as to give such a gift for new short entries. Sell-highs would be the best trading strategy for December and beyond as technical outlook is currently negative for the single European currency.
Kiwi charted an inverse hammer on Monday, which is a reversal candlestick. The second buy signal came from the failed test of the daily EMA20 support on Tuesday. We did not hesitate to jump in fresh long positions and the risk paid out with 100 pips of the profit. The speed of the NZD/USD was growing together with the weekly close at 0.68780 beating the recent top from November 16, gives solid odds for the pair to continue the bullish recovery. On the long-term perspective, once the bulls will clear the last bears’ defence line at 0.7034, the road will be open for the year-highs around 74 cents due to the absence of any significant technical resistance. The uptrend might be reinforced also because of all of the weekly technical indicators turning bullish, showing strong buy signals. We suggest the pair as one of the positions to be present in a portfolio of traders with a wider point of view. Intraday traders with relatively tight accounts should use buy-lows strategy, expecting the pair to bounce to EMA20 on H4 timeframe. Aggressive traders could buy the pair right on the market opening with the condition of no weekend gaps to appear.
EUR/NZD: Extremely Bearish.
The fact that two major currency pairs - EUR/USD and NZD/USD - move in different directions recently, made an extreme technical outlook for the cross rate EUR/NZD. After almost a year of the sideways consolidation range (yellow on the weekly chart below), the pair showed an impressive downside run of 1500 pips, falling 7 weeks out of 8. The bottom of the range has been breached, creating an important technical precedent. If things will go as quickly as it happened lately, the rate will lose the ground completely, testing three consecutive support levels indicated on the chart below. The sell-and-hold trading strategy looks very attractive for EUR/NZD.
One more attractive cross-rate to trade on is AUD/JPY. As long as the Aussie keeps recovering versus the greenback, and dollar-yen keeps climbing on a slow-action bullish momentum, the cross rate AUD/JPY will gain strength. The technical outlook is set for the bullish continuation with the trend indicator Ichimoku cloud in the very bullish mode. The span turned bullish after the reversal pattern several weeks ago, the price is clearly above the cloud, the latest bearish bounce did not even hit the baseline support. Moreover, the price action accelerated after the pair breached the conversion line resistance, re-testing the highest level since July 18. A real strong level to confirm the bulls’ strength will be the range of 84.00/40, the top resistance from June 2018. The ascending median line attracts the bulls to lift the prices towards the upper range. The same buy-and-hold trading strategy is applicable here in the long-term technical perspective.