U.S. stock indices retraced from all-time highs.
The past trading week signalled the beginning of a corrective period for major stock indices across the globe. Equities investors failed to proceed with the bullish rally and took profits, adding selling pressure on benchmarks. Strong volatility was noticed in the middle of the trading week, but the overall downtrend continued as buyers took a defensive position, postponing a possible come-back to a later period and more attractive prices. For instance, the S&P 500 benchmark dropped more than 3% to 2932.5 points, tech-heavy NASDAQ plunged -3.85% to 7685.8 points, while the Dow Jones Industrial Average lost -2.6% of its value. European and Asian stock indices followed the leader in terms of losses. German DAX 30 (-4.48%) and French CAC 40 (-4.8%) indices were among the weakest benchmarks, while Japanese Nikkei 225 slid -2.25% this past week.
U.S. dollar index charted a long upside whipsaw on the weekly timeframe.
The index measuring a volume-weighted basket of six major currencies versus the greenback tested 14-months highs at 98.93 but retraced back to almost where it started (98.10) the past trading week. The inability of the bulls to continue the recent uptrend might turn to a long-term bearish reversal. However, the structure of rates swings was not smooth as major currency pairs were split in terms of directions. For example, EUR/USD tried the water at the lowest exchange rate since June 2017, printing 1.10269 as the lowest weekly quote, but corrected back up closer to the end of the week, and finished Friday’s action at 1.11084, losing only 0.18%. The British Pound was the weakest currency as GBP/USD accelerated the downtrend, closing the week at the lowest price (1.2162; -1.79%) in 27 months. In contrast, Swiss Franc and Japanese Yen overperformed the foreign exchange market as USD/CHF plunged -1.11% to 0.98234, while USD/JPY dropped -1.94% to 106.592. All of the commodity currencies were moving in the same direction, weakening versus the U.S. dollar for more than 1% on average.
Commodities rally with volatile action.
The safe-haven gold reflected the same tendency as per major currencies. The yellow metal bounced back to $1406 per ounce (weekly low), but charted a dramatic U-turn and soared up to $1440, printing the highest weekly close price since May 2013. The lack of a long shadow and the performance at the beginning of the current week suggests a further appreciation of the price of gold. However, other precious metals were sold-off in the same way as high-risk currency pairs. For instance, Silver (-1.15%), Platinum (-2.38%) and Palladium (-8%) were all in the red. WTI Crude and Brent Oil prices had a wide range of the action, but failed to hold mid-week gains and slid south as a result.
EUR/USD weekly forecast: Bearish.
The most popular currency pair in the FX market failed to continue the bullish recover on Tuesday this past week as the bullish run was limited by strong selling pressure from the bears at around 1.1160. EUR/USD dropped 130 pips in 36 hours after that and tested the lowest exchange rate in 25 months. However, the bulls stepped in at 1.10269 on Thursday, lifting the pair toward the resistance slightly above 1.1100. The Euro’s strength is not over yet, according to the three green daily candlesticks, which might signal that a local bottom of the recent downtrend has been found.
As long as the rate remains below 21-days simple moving average, EUR/USD is in a long-term downtrend. The resistance curve should determine the strength of the latest bullish rebound started on July 31. The MACD trend indicator is still in the negative territory as the histogram and both lines remain below zero. However, both lines turned north, and it’s extremely important to watch the performance in terms of possible crossover. The fast Relative Strength Index with the 13-day period did not reach the oversold level and reversed, heading to the 50% threshold, which should whether confirm or deny the bullish reversal pattern. The overall technical sentiment on the daily chart (see the screenshot below) is still negative, although EUR/USD failed to proceed with fresh lows at around 1.1000. The psychological round-figure level is still a tough nut to crack for the bears.
The sell-highs trading strategy remains more attractive as EUR/USD was strengthening slowly but falling rapidly since June 24 when the uptrend correction was finished. Since July 1, the pair breached SMA21 support curve with the daily close rate and pointed to a new wave of selling. Therefore, short positions from the former support (now resistance) should be attractive for the swing trading approach, and medium-term perspective. There are two price levels among pivot points to watch: highest daily close at 1.11558 charted on July 31 and the descending SMA 21 curve at 1.11844 as of Monday, August 5. The recent bottom of 1.10269 is the nearest target, which is slightly above the round-figure support of 1.10000. If both defensive barriers were breached, the pair could accelerate the downtrend.
WTI Crude weekly forecast: Bearish.
The recent short-term correction ended up below two strong resistance levels on the daily chart below. The black gold price was testing highs of %58.79 per barrel on July 31. Since then, the bears took the oil market back under control. As a result of Thursday’s sell-off, WTI Crude lost -5.69% of its price in one single day, plunging to $53.62 per barrel (weekly low). Friday’s price action gave another attractive entry point for the bears at around $56.00 per barrel.
The technical sentiment is extremely bearish as the oil price kept charting the sequence of lower lows and lower highs. The daily timeframe is divided into several price ranges reflecting Fibonacci Retracement levels. Bollinger Bands %B indicator and Commodity Channel Index are in the negative territory with enough room to keep heading south. If the BB indicator closed a day below the support threshold, that might signal a bearish acceleration.
As long as the level of $54.54 per barrel stands, a bullish swing is possible. From a conservative point of view, it would be necessary to wait for another test of the ascending trendline before entering the market, however, such an attractive level for fresh short positions might not be achieved. Therefore, it would be reasonable to search for entry points at around $56.00/55.50, targeting a breakthrough towards $52.00.