Global equities crash
Most of the high-yield assets were sold off last week and the crash even accelerated at the beginning of the current week. The US Federal Reserve stepped in, trying to calm down the panic by cutting the interest rate by 50 basis points on Wednesday, but that intervention did not help a lot. The whole trading week was coming along with enormous volatility never seen since the financial crisis in 2008. Major stock indices were plunging and rallying back by 4-5% daily. Although US benchmarks finished the trading week unchanged, Monday brought another wave of the sell-off, promising more losses in the week ahead.
The S&P 500 benchmark had long shadows on both ends of the weekly candlestick, underlining the uncertainty and high volatility. However, the weekend was negative in terms of further outlook, and the index dropped incredible -7.71% in one single day. The tech-heavy NASDAQ Composite sharted insignificant gains last week but plunged -6.85% on Monday. The Dow Jones Industrial Average registered the largest after the financial crisis 12 years ago and 9/11 turmoil, falling -7.89% in one single day on Monday. Overseas benchmarks were vulnerable to the same plunge with the heaviest losses noted for the British FTSE 100 (-3% last week and -10% on Monday).
Major currencies rallied, emerging markets sold off
The US dollar declined versus majors on the back of dropping 10-year Treasury yields, but gained strength versus emerging markets currencies amid capitals flows to safe-haven assets. The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies dropped -2.07% and continued falling on Monday. However, DXY did not reflect the panic in other countries as most of the market players were getting rid of high-risk currencies.
The single European currency rallied +2.32% to 1.1284 versus the US dollar and continued strengthening on Monday, testing 13-months highs at 1.1500. A similar performance was noticed for other major currencies in Europe as the British Pound finished the trading week at 1.3048, while the USD/CHF currency pair plunged -2.87% or 275 points to 0.9377 with extension to 0.9200 on Monday, the level never seen since February 2018. The Japanese yen had also reflected the enormous demand for safe-haven assets as USD/JPY closed the previous week at 105.36 and posted lows at 101.18 on Monday.
The market sentiment in developing countries was opposite as investors were selling high-risk assets at any price available and reverting to safety in US dollars. Russian Rouble, Brazil Real, Mexican Peso and South African Rand were hit the hardest. Here are several figures as of Monday close rate: USD/RUB +2.81% last week and +9.06% on Monday; USD/BRL +3.43% and +2.08%; USD/MXN +2.56% and +3.38%; USD/ZAR +0.04% and +1.23%. Although most of the currencies mentioned regained part of the losses on Tuesday, more volatility is expected in the week ahead.
The price of oil plunged
One of the most notable events happened in the oil market recently. On Thursday, OPEC members had a meeting with a purpose to cut global oil production and tackle the plunge in the price of oil. The main concern of oil traders was that the impact from coronavirus might be extremely negative for global demand for the black gold, thus consumption could fall dramatically. The price of oil was declining by 8% last week. However, Russia refused to cut oil output. The weekend brought severe escalation between Saudi Arabia and Russia as both countries announced a price war. As a result, oil prices showed the worst performance since 1991, falling almost 30% on Monday with lows registered at $27.40 per barrel for WTI Crude in New York and $31.45 for Brent Crude in London. Such a dramatic sell-off was driven not only by the panic selling but also caused by automated trading and a large number of margin calls occurred in trading terminals. When the dust settled, oil prices recovered part of Monday’s losses, however, it is too early to talk about a potential trend reversal. As of Tuesday morning, WTI Crude was trading at $33.25, adding 10% compared to previous days close. Nonetheless, the total loss of the black gold price was registered at around -50% counting from the peak registered in January this year.
The price of gold was climbing higher with a local peak noted at $1703 per ounce. However, that action did not reflect the whole picture in terms of the rush for safe-havens. The most dramatic run in safety was the demand for US Treasuries as 10-year yields plunged to 0.569% compared to 1.587% three weeks ago. The fixed-income market had noted not only unprecedented demand for US government debt from all of the players in the financial markets but also rumours about further rate cuts by the Fed added fuel to the fire.
WTI Crude weekly technical forecast: Extremely Bearish
Before we try to forecast the price action for the upcoming days, we should take a look at a long-term picture. The weekly chart below shows that the price of oil is in danger of losing the ground completely. There were several predictions from leading market players that the price of oil could fall as low as $20 per barrel, and the technical outlook confirms such a scenario. From a technical analysis point of view, the recent downtrend had several crucial achievements.
First, the price of oil breached the local bottom of $41.37 per barrel last week. That static horizontal support used to limit all of the bearish retracement during the recent recovery since August 2016. Besides, that price mark used to act as the latest defensive barrier for the bulls, which used to hide their postponed buy-orders below it. As far as the demand around the psychological round-figure support was absorbed by sellers, the price of oil accelerated the plunge.
Second, the rate has almost reached the lowest since the plunge in February 2016 ($26.08). Although the bullish technical rebound occurred on Tuesday, the technical sentiment remains extremely bearish, and it is fair to expect another wave of the sell-off with a possible test of the second static horizontal support on the chart below.
Although the daily chart below points to extremely oversold conditions, further selling pressure is likely to remain on the table in the nearest future. The blue descending channel has a support trendline, which is a simple clone of the resistance trendline built by connecting two recent peaks. Williams Alligator has large distances between its lines and the nearest resistance comes at around $42.08. The green curve has a certain lag and it is descending rapidly, so it is hard to expect the oil market to rebound north so deeply. The MACD trend indicator dropped to multi-year low, reflecting the strongest bearish momentum in 29 years. The fast and sensitive RSI reflected the bullish recovery on Tuesday, coming off the extremely oversold value. However, the threshold of 30 points should act as the resistance for the oscillator, and short-sellers might consider fresh deals if RSI failed to breach it from below.
USD/RUB weekly technical forecast: Extremely Bullish
The Russian rouble was sold off on the back of tensions with Saudi Arabia and the plunging price of oil. The USD/RUB currency pair soared to 76.2129, the highest level since February 2016. The Central Bank of the Russian Federation had to step in, restricting the rules of purchasing foreign currencies for Roubles in the local exchange, and this intervention helped to calm the panic down a bit. However, the mid- and long-term technical outlook remained negative, and the recent recovery seems to be temporary, according to the weekly chart setup below.
Several crucial events for the technical analysis happened recently. First of all, the Ichimoku Cloud trend indicator turned bullish after the leading span performed the bullish crossover. Future support and resistance levels jumped, both support lines reflected the bullish spike, coming through the cloud as a hot knife goes through butter. On top of that, the Average Directional Index showed the largest bullish sign in 4 years as its mainline crossed the threshold from below, signalling a strong bullish momentum, and the surplus between -DI and +DI surged. When it comes to possible targets in the medium-term perspective, we should connect two recent lows, clone the trendline and move it up to the local top in September 2018. As a result, we’ll get the resistance level slightly below 74 roubles per dollar for the upcoming week. If the bulls managed to lift the exchange rate above that resistance, then the uptrend would accelerate up to the range of 78/82 noticed in January 2016.