The third trading week of summer came along with sharp price swings for many assets in the financial markets. Some of the trends accelerated and reached significant technical levels, while others printed high volatility and many reversals throughout the week. The bulls took the equities market under control as U.S. stock indices were leading the gains. The S&P 500 benchmark had rewritten all-time high value at 2964 points, climbing another 1.79% in the recent uptrend. Dow Jones Industrial Average did not reach the peak charted in October 2018, but edged higher by 2.41%, nearing the all-time high. Tech-heavy NASDAQ had the best performance of +3.13% but remained rather far from the recent peak. Japanese Nikkei 225 had a lagging price action but followed the general trend with +0.67% weekly gains. In Europe, German DAX 30 added 2.01% to the value, while French CAC 40 surged almost 3%.
In the foreign exchange market, the U.S. dollar index was hit hard and the greenback lost 1.39% versus the volume-weighted basket of six major currencies, charting the lowest value since March. The strongest currency was the Swiss Franc as USD/CHF lost -2.25% of the exchange rate. USD/CAD dropped -1.43, while other commodity currencies such as the New Zealand and Australian dollars were among the slowest majors. Euro (+1.43%) and British Pound (+1.39%) followed the general anti-dollar flow and reversed the recent downtrend with significant achievements from a technical point of view. In other markets, it’s worth noticing impressive rally of WTI Crude Oil price, which surged almost 10% this past week, as well as gold’s bullish rally of 4.27% with a test of crucial resistance of $1411 for the first time in six years.
The U.S. dollar index has completed the bearish reversal pattern, promising a further downside action in the week ahead. Multiple bearish signs come from technical indicators and graphical analysis. First, the index breached the ascending green support trendline, which used to limit losses several times during the uptrend this year. Second, the current value is far below the 55-days exponential moving average, which turned south. Third, the MACD trend indicator avoided a bullish divergence with lower lows on the chart and higher lows of the signal line. Both lines performed the bearish crossover, while the histogram had extended the negative value. Fourth, fast 13-days RSI oscillator crossed the 50% level, confirming strong momentum, but remained far from the extremely oversold bottom. Fifth, three large red daily candlesticks in a row without significant downside shadows point to continuation pattern. When it comes to possible targets for sellers, we’d highlight the lowest daily close rate at 95.41 charted on January 30. Those traders who missed the brilliant opportunity to short the greenback last Wednesday should consider using the sell-highs trading strategy, monitoring intraday bounces.
The overall technical sentiment for the most heavy-volume traded currency pair is bullish as the chart has higher highs and the rate went off the recent range, finishing the trading week at 1.13688, the highest quote since March 22. However, things aren’t so bright for the bulls and technical indicators point to a deeper retracement if not reversal. EUR/USD failed to breach the upper resistance line (1.13699) of the Bollinger Bands with 21-days period in the same way it did on June 7, promising further bullish action. MACD lines have a chance of creating a bearish divergence as the recent peak of the momentum was not overshadowed by the recent action. Williams %R oscillator climbed to an extremely overbought level and it needs a reload to continue. Therefore, we expect EUR/USD to bounce back to the middle BB line (ascending) in the range of 1.1250/75 where we’ll assess chances for re-entering with long positions. On the other side, shorting the pair from current levels would be dangerous as the uptrend accelerated last Friday, and the bulls could gather momentum, cracking the technical concerns. If that happened, we’d use a breakthrough trading strategy with postponed buy orders above the recent peak. The long-term crucial pivot point is still 1.1450, and if the bulls managed to overcome it, the uptrend might turn to something sustainable and long-term.
The British Pound used to be the weakest currency recently, but the greenback’s sell-off lifted GBP/USD to a deep bullish retracement. Sterling has more concerns than other majors in terms of technical analysis. Two positive signs are shown on the daily chart below. First, the ascending green median line held the bears from further achievements, working as the support level just 50 pips above the crucial baseline of the huge descending triangle. Second, GBP/USD bounced north, breaching horizontal resistance of the latest peak noticed on June 7 (daily close rates). If the bulls are intended to lift the rate further north, they will face a strong defensive barrier in the range of 1.27999 (close price on February 14) and 1.28280. 55-days simple moving average is still headed south, and it’s edging lower to the same range. Those traders who still hold longs from the past week should consider taking profits around that range and get a wait-and-see position. Looking at the intraday volatility, the bears are still strong, and the market would give attractive depth to re-enter with fresh longs. However, the risk of renewing the long-term downtrend still persists.
The Swiss Franc is traditionally slow-moving and the most stable currency among majors. However, the recent volatility points to the fact that the market is vulnerable to significant shifts and re-positioning in the long run as the greenback had lost more than 2.25% versus Swiss France on a weekly basis. At the same time, USD/CHF has always been the leading indicator for the U.S. dollar’s sentiment across the board, and such a sharp price action might indicate further bearish achievements for the world’s reserve currency. The technical outlook is extremely negative for the pair as Ichimoku Cloud trend indicator is in full bearish mode with the span’s range enlarging and all lines in the right order to continue moving south (see the daily chart below). The recent bounce toward the parity was nothing but the technical retracement before charting new lows. ADX indicator had increased the bearish momentum, while the negative surplus is growing. The trading volume is far from peaks noticed in January, which confirms that the market is far from its highest capacity, and buyers moved postponed orders lower. The crucial support is placed at 0.95424, the lowest rate charted on September 21 2018. The sell-highs strategy is applicable with perfect depth at 0.99071 for upside swings and fresh short positions.
GOLD: Extremely Bullish.
Gold printed the highest weekly close price since May 2013. As long as most of the technical indicators reached overbought levels on shorter timeframes, we decided to assess the long-term perspective, using just the graphical analysis. As you may see from the squeezed weekly chart below, the era of the cheap gold price is over. We’d highlight an ascending median line (lower green), which used to limit bearish action in December 2015 and January 2017. It also divided the chart by half since February 2018. The upper trendline is the parallel clone and it points to a potential target for the bulls at around $1500 per ounce for three-month perspective.