Global equities keep climbing
World trade optimism, low interest rates and risk-on trading mode sent U.S. stock indices climbing to a new all-time high value this past week. Regardless of the low trading volume due to the Christmas, global investors kept buying equities despite quite expensive prices of single shares and stock indices. So, the S&P 500 benchmark climbed another +0.33% after charting the largest weekly gain since the beginning of September. The index closed the week at the new historical record of 3235.8 points. Tech-heavy NASDAQ surged even more (+0.81%) on the back of strong demand for the global tech sector. The Dow Jones Industrial Average printed a more moderate gain of +0.54% but continued the uptrend.
Overseas indices were mixed as different flows were noticed in the financial markets. Japan’s Nikkei 225 gapped on the downside throughout the past weekend and charted a red candlestick after strong gains at the beginning of December. However, the loss was limited by only -0.26% with a long upside shadow on the chart. German DAX 30 was vulnerable to a higher level of volatility, charting a long downside whipsaw but closing the week with a moderate gain of +0.12%. In contrast, another major European Index - French CAC 40 - rallied +0.26%, renewing the all-time high value together with the U.S. benchmarks. British FTSE 100 soared +0.86% on the back of political optimism, registering the highest weekly gain since January this year.
The U.S. dollar index drops
The world’s reserve currency failed to develop gains from the previous week as the U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies dropped -0.68%. What’s more, the index closed the week at the value in six months (97.01). The weekly candlestick had quite a long downside shadow, which underlines the greenback’s weakness.
The most heavy-volume currency in the weighted basket - Euro - added the largest part of the selling pressure on the U.S. dollar as EUR/USD surged +0.90% and breached the highest resistance level of the weekly close rate since August. Commodity currencies overperformed the rest of the majors on the back of the risk appetite and the surge in metal prices. So the New Zealand dollar showed the fastest growth pace versus the greenback in three weeks. NZD/USD soared +1.51% and continued the recent impressive bullish rally. The six-months high was registered above the psychological rate of 0.6700. The Australian dollar had a similar performance as AUD/USD added +1.20% to the exchange rate and closed the week at 0.9683.
Other major currencies had a mixed performance. The Swiss Franc followed Euro and kept the stability of the EUR/CHF cross-rate, so USD/CHF declined by -0.82%. The British Pound was recovering part of the previous loss and GBP/USD gained only +0.66%. The Japanese yen was entirely flat amid low trading volume and holidays. The Canadian dollar was also trying to follow the trend of other commodity currencies but its gains were limited as USD/CAD declined by only -0.52%. The greenback was declining versus emerging markets currencies as well.
Gold and oil strengthen
The price of gold charted the largest weekly gain since August this year (+2.22% to $1510.81 per ounce). The yellow metal was trading below that round-figure level throughout seven weeks after the dramatic sell-off in November. What’s even more surprising is that there was no major shift in U.S. 10-year Treasury yields, so the demand for gold was driven mainly by speculators and central banks. The price of Silver surged even more than that (+3.64% to $17.56 per ounce). Palladium had finished the bearish retracement after the price tested $2000 per ounce for the first time, and renewed the uptrend, adding another +2.83%.
Both WTI Crude and Brent oil prices continued the uptrend on the back of risk-on trading mode, global trade optimism and output cuts by global producers. Although the trading volume was also quite low amid holidays, WTI Crude climbed +2.15% and breached above $61.00 per barrel for the first time since May. Brent oil soared +3.26% to $68.17 per barrel in London.
EUR/USD Weekly technical forecast: Bullish
The single European currency breached the ascending triangle formation on the upside and printed the highest daily close rate since August 12 (1.11758). What’s more, Friday’s rally was the largest one-day gain of EUR/USD in six months as the pair surged +0.71% or 79 pips (four-digit quotes). Although there was a failed attempt to test the level of 1.12 dollars per Euro on December 13, this bullish run looks much more sustainable as the daily close rate is close to the high and upper tails are absent on daily candlesticks (see the daily chart below).
Technical indicators are bullish. Williams Alligator turned the eating mode on as its lines were placed in the right order to proceed with the uptrend. MACD trend indicator entered the positive zone as the histogram turned green while both lines performed the bullish crossover in bullish territory. Fast and sensitive relative strength index with a period of 13 days jumped to 64.5 after hovering around the level of 50, which reflects strong bullish momentum.
The bears might try to re-test the previous resistance now support at 1.1150 in the week ahead. Such a correction should be considered as an entry opportunity for long positions following the buy-dips trading strategy. The mid-term target and technical resistance are placed at 1.1272 (the highest daily close rate on July 18) with an intermediate barrier at 1.1213 (the peak on August 12). An alternative scenario suggests that EUR/USD would come back to the consolidation range of 1.1100/1.1050 if the bears were able to breach the support level. However, that is less likely than a bullish continuation, according to the current technical sentiment.
Gold weekly technical forecast: Bullish
The price of gold breached the resistance trendline of the descending channel on the daily chart (see the screenshot below), which used to hold rates since the yellow metal peaked on September 4, 2019. What’s more, the psychological round-figure mark of $1500 per ounce was breached for the first time since the bearish plunge at the beginning of November. All those signs might lead to a renewal of the long-term uptrend of the precious metal.
The technical sentiment is in favour of the bullish scenario as well. The Ichimoku Cloud trend indicator has almost completed the bullish reversal pattern. First, the leading span performed the bullish crossover for the first time since the bearish correction started. Second, the price breached the upper band of the cloud, coming out of the uncertainty zone. Third, Ichimoku’s conversion line followed the price and went off the cloud as well. The only thing that the bullish reversal pattern lacks is the breakout of the BaseLine support, which is more lagging.
In the short-term perspective, there is a concern of the Doji-Star candle noted on Friday. That sign could be a preliminary indicator that the bullish momentum is getting exhausted. Therefore, the bears could add selling pressure and push the price of gold to the previously breached resistance now support level at $1490.75. However, such a price action would only confirm the sustainability of the uptrend in case if the bearish retracement was limited by that support. The buy-dips trading strategy looks reasonable, but traders should keep stop-loss orders tight as the holidays period is traditionally full of surprises.