Global equities surged
Several fundamental factors were driving the equities market around the globe this past week. First of all, the death toll curve started flattening and analysts made a cautious suggestion that most of the developed countries are reaching the peak of the coronavirus outbreak. On the other hand, unprecedented supportive measures started working in terms of saving the corporate sector from a total economic collapse. Although most of the suggestions were rather discreet and the global economy is far from recovering, global stock indices surged led by US benchmarks.
The S&P 500 index soared +11.96%, breaching several technical resistance levels from below including 2750.00 points. The weekly close rate was the highest value of the index in 5 weeks, while the total rebound from a local bottom of 2300.6 points (the lowest weekly close rate) exceeded +21%. The optimistic wave of buying equities helped tech-heavy NASDAQ Composite to rally +9.51% and finish the trading week at 8233.6 points. The Dow Jones Industrial Average added +12.66% to its value of 23741.5 points, which was the second-largest weekly gain since the brutal sell-off started in February this year. The only concern for the bulls was that Friday was a comparatively quiet day due to the Holiday in the United States, which lowered the trading volume somewhat.
Overseas indices followed the global leader in terms of the trend direction. So Japanese Nikkei 225 rallied +9.42% despite the announcement of tougher quarantine measures in the country. German DAX 30 surged +12.09% on the back of forecasts about a quick recovery in business activity. French CAC 40 and British FTSE 100 had more modest achievements but gained strength as well (+8.48% and +8.93%, respectively).
The US dollar index slid
Volatility eased in the foreign exchange market, which should be a positive sign for all of the financial markets. The demand for the global reserve currency dropped, signalling a higher risk appetite of traders and investors and a declining flow to safety. The US dollar index measuring the greenback’s strength versus the volume-weighted basket slid -1.19%, falling below the psychological round-figure mark of 100 points for the first time in five weeks.
Most of the major currencies strengthened versus the US dollar simultaneously with the only exception of the Japanese yen as USD/JPY failed to reflect the optimistic spike of global stock indices and remained flat this past week. The single European currency gained +1.20% versus the US dollar and closed the week slightly below the psychological resistance of 1.1000 dollars per Euro (1.0936). The Swiss Franc reflected the price action of EUR/USD as USD/CHF lost -1.15% of the exchange rate. The British Pound was stronger than the greenback (GBP/USD +1.50%) but weaker than commodity currencies (GBP/AUD -4.20%, GBP/NZD -2.13%).
The Aussie and Kiwi soared +5.93% and +3.75% versus the US dollar on the back of positive expectations about the speed of the recovery in the region. Commodity prices helped both currencies to recover a decent part of previous losses as well. The Canadian dollar gained a sudden strength on the back of higher-than-expected figures in the unemployment report in the country, so USD/CAD dropped -1.74% below 1.4000 despite the lack of support from the price of oil.
As far as emerging markets currencies were hit the hardest in previous weeks of high-risk assets’ sell-off, the pace of the recovery was larger, accordingly. So USD/MXN plunged -6.60%, USD/ZAR dropped -5.42%, USD/RUB retraced -3.49%, while USD/CNH slid -0.96%.
Commodities were mixed
The price of gold and US 10-year Treasury yields had an opposite correlation this past week. On the one hand, fixed-income investors did not keep the same pace of rush for safe-havens, while some of the previous securities were sold off to buy higher-yield assets such as stocks. On the other hand, expectations for much larger liquidity after the unprecedented injection of cash into the financial system and a speculative factor forced global investors to buy gold. The yellow metal added +4.86% and closed the past trading week at the highest level in seven years ($1694.90). The price of Silver surged +7.06%. But demand forecasts for other precious metals used in automotive production, for example, did not help the price of Palladium (-0.75%) to maintain the bullish bias.
Oil market players were expecting the OPEC meeting to announce a cut of oil production from the largest producers around the globe. Such conflicting countries as Saudi Arabia and Russia agreed to lower the oil output, while Mexico refused to join the deal and left the conference. Therefore, some other countries might not follow the general decision to decrease the daily oil productions shortly, which could keep weighing on the price of oil. Besides, there is a huge concern regarding the global consumption of black gold. As a result, WTI Crude oil price plunged -19.52% to $23.17 per barrel, erasing most of the gains from the previous week. Brent Crude price dropped -8.86% to $31.80 per barrel.
WTI Crude Oil weekly technical forecast: Bearish
The price of oil charted the second-lowest weekly close since April 2002, losing almost 30% of its value. US exchanges were closed on Friday so the black gold was falling three days out of four this past week. There was an attempt to reverse the price action on Wednesday and Thursday, right before the OPEC meeting as some of the market players were hoping for a bullish outcome of the negotiations. However, the bullish spike to $28 per barrel left nothing but a whipsaw on the daily chart, while the bearish rally continued down to $23.17 per barrel. On top of that, negative gaps are possible throughout the weekend as the lack of trading volume might cause a postponed demand for short positions at the beginning of the upcoming week.
From a technical analysis point of view, the recent bullish action toward the weekly high of $29.11 per barrel was nothing but a retracement, and the mid-term downtrend should continue weighing on the price of WTI Crude Oil. The exponential moving average with a period of 25 days limited the bullish price action, acting as the resistance curves two times in a row, which confirms the weakness of the bullish momentum despite the sharp rally in the previous week. The daily chart below shows that the curve is still headed south, even though it flattened somewhat, reflecting the technical correction.
Another concern is that the MACD trend indicator is diverging with the Relative Strength Index. On the one hand, the MACD histogram printed several bars in the green, pointing to a bullish bias, and both lines performed a bullish crossover. On the other hand, the lines are still in the negative territory and come rather far from the zero thresholds, which reflects the sequence of lower lows recently. Besides, the RSI oscillator did not even cross the middle line of 50%, bounced back down and charted lower highs last week, which has only one interpretation - bears dominate the market nowadays.
The fundamental background is also negative for the price of oil, so we expect another test of the local bottom at $20.00 per barrel in the week ahead. That price reflects psychological round-figure support as everything below seems to be too cheap for global producers. The real technical support comes at around $18.67 and $16.80 in extension, so traders might see another week of the sell-off. Short positions are preferable, given all that.
AUD/USD weekly technical forecast: Bullish
The Australian dollar overperformed the rest of the major currencies versus the US dollar this past week. AUD/USD soared almost +6% or 356 pips on the back of risk-on trading across the globe. On top of that, the exchange rate appeared above the round-figure mark of 62 cents for the first time in five weeks, which could point to a deeper bullish retracement if not a complete reversal of the recent downtrend.
Technicals are in favour of the continuation scenario, according to the daily timeframe. The Ichimoku Cloud trend indicator has performed the bullish crossover of the leading span, while the rate breached both resistance lines and headed toward the bottom band of the cloud. The Average Directional Index signalled a weakening bearish momentum and the surplus between -DI and +DI lines changed to positive. The Chaikin oscillator is far above the threshold in the accumulation zone, while the recent bottom did not cross the line from above. Therefore, we suggest long positions for AUD/USD in the week ahead.