Financial markets made another U-turn this past week, the second time in March. The fear/greed barometer has been shifted on the right side after appearing in the left part just a week ago. Traders and investors absorbed all of the technical corrections made by major financial instruments, while equities and risk currencies bulls celebrated an outstanding victory, at least a local one. Major trends were confirmed and assets continued moving in the same direction as at the beginning of the year, underlining the strength of those trends and renewing the momentum. Looking back at the two-weeks cycle, it feels like prices needed to reload overbought oscillators and kick small traders out of the market before moving forward. Global equities rallied, traditionally led by US benchmarks: S&P 500 pared all of the losses from the previous week, soaring almost 3%, Dow Jones Industrial Average added only 1.57% to its rate after gapping in the weekend, NASDAQ surged 4.15%, closing the week at the highest rate since October 8 2018. Japanese Nikkei 225 was much more modest in the gains of 2.02%, German DAX 30 gained 1.99%, CAC 40 rallied for 3.33%, breaking through 23-weeks highs, FTSE 100 added 1.74%.
The FOReign EXchange market’s price action was the straight reflection of the bullish achievements of global equities. The US dollar was sold off as the reserve currency. The US dollar index, which measures the greenback’s strength versus the volume-weighted basket of six major currencies, plunged 0.89% after the failed test of local highs last week. The British Pound was the strongest currency among majors with GBP/USD adding 2.16% (almost 300 pips). The Sterling had not only recovered all of the previous losses but also tested a psychological resistance level of 1.3400 versus the greenback, which never happened since June 2018. The British currency overperformed the rest of the majors as well. GBP/JPY led the gains of cross-rates, adding 2.42% to the exchange rate, and rallying for almost 400 pips. EUR/USD bounced off the local bottom, gaining 0.80%. The Japanese Yen, in contrast, was the weakest currency, losing the momentum versus not only the pound and the greenback but also versus commodity currencies. The Australian and New Zealand dollars were moderately stronger versus the US dollar, climbing for 0.56% and 0.62%, respectively. The Canadian dollar gained strength on the back of rising oil prices, USD/CAD slid for 0.60%, testing the support level of 1.3300. WTI Crude price continued the uptrend with 4.29% gains but failed to reach the psychological round-figure resistance level of $60 per barrel. Precious metals were almost flat with a slightly bullish bias.
The US tech index overperformed the equities market, rallying 4.15% or 291.6 points, which was the third largest weekly rally in 14 months. In addition, the benchmark closed the trading week at the highest rate since the market crash in October 2018, near the record-high levels which were charted in July 2018. The weekly chart below had an obvious inverse head-and-shoulders pattern, which is one of the strongest reversal patterns in the graphical analysis. It has two left shoulders and one right shoulder which was charted in the previous week. There was a dangerous attempt by the bears to test the support range of 6846.4 (weekly close for the left shoulder 1). If that support was breached, then the head-and-shoulders pattern would not work. Fortunately for NASDAQ bulls, the stock index was supported by 21-weeks exponential moving average, which held the rates from further sliding South. H&S headline (blue line) should work as the support trendline from now. Moreover, this past weeks’ long green candlestick is nothing but the bullish engulfing, signalling strong uptrend ahead. The nearest target is all-time high at 7671.2 points, and it’s just a question of time, how fast can we get there. The buy-dips trading strategy is applicable with shorter timeframes to monitor for trading signals. EMA21 curve should work fine, pointing to deep-enough bounces for fresh long positions.
The past week’s price action could seem like a roller-coaster without any clear tendency but that’s not the case for the British Pound. Yes, that’s a tricky currency which loves false breakthroughs and fake signals. However, the daily chart below shows that GBP/USD was trading in accordance with key technical rules and sequences last week. First, the price action on March 8 was nothing but the overreaction to the bearish correction and the daily close price appeared below the Bollinger Band’s middle line but supported by green trendline, which used to work as the support several times earlier. Second, Monday’s action lifted the Pound above the middle line which divides growth from decline but GBP/USD remained below the upper line of the second BB with deviation 1 (yellow background). Third, there was a failed test of the upper BB line, which forced traders taking profits and triggered postponed sell-orders above 1.3275. The logical continuation was the test of the BB middle line again, which showed that the breached resistance works as the support now. Fourth, the bulls pushed the pair to the upper BB line again, closing the day near the resistance trendline (blue ascending line), at the highest price in 8 months (1.3337). Fifth, Thursday’s retracement was limited by the upper line of the second BB, which underlined the uptrend’s strength for the nearest future. Given the recent Pound’s volatility, it’s easy to expect another bears’ attempt to re-take the market control, and GBP/USD might print a daily whipsaw as deep as 1.3050/75. That depth would be perfect for new long positions. A more aggressive trading strategy would suggest buying the Sterling in the range of 1.3180/3210, counting on the bullish continuation after the potential rebound. However, we suppose that the Cable might keep surging this upcoming week without any significant retracements, so we’re just holding our longs. The very nearest target is 1.3474, while the real medium-term resistance is placed at 1.3760, the lowest daily close noticed in February 2018.
The buy-dips strategy worked perfectly for GBP/JPY too. The only nervous day was Monday last week, as the cross-rate went far below the Ichimoku’s Base Line support but closed the day above it. Nothing changed for the long-term technical outlook as the Ichimoku trend indicator is still extremely bullish with the wide range of its span and all of the lines in the correct order to continue the uptrend. The retracement gave us another 400 pips of fresh profit last week, although we’re still holding a long position, counting on the bullish breakthrough of the horizontal static resistance level of 149.279 Yen per Pound. The sequence of higher highs confirms our suggestion, so there is nothing to worry about as long as the pair stays above both Ichimoku support lines (daily close prices, not whipsaws and candlestick shadows). Those traders, who missed the perfect opportunity to join the party, could consider opening fresh longs on bearish slides toward the Ichimoku’s Conversion Line (blue curve, 146.30 currently). But there is a doubt if such depth would be gifted. More aggressive traders should look at intraday timeframes to adjust the reasonable entry levels. Going short on GBP/JPY would be completely insane, as standing against such a strong trend is dangerous and the pair did not achieve its extreme overbought levels yet.
WTI Crude Oil: Bullish.
Those analysts, who think that the Ichimoku Cloud indicator works only for yen pairs, should have a look at the daily chart below. The Base Line support worked at least two times in the recent uptrend, limiting oil price from further slide during local retracements. The black gold is testing an ascending median line for the second time this year. The third attempt should be successful, and once the price breached that resistance, the road to $64.21 will be open, as there is no significant technical resistance above it. The psychological round-figure level of $60.00 might hold the bulls for some time but the overall uptrend is too strong to reverse just like that.