Global stock indices rallied
Although the macroeconomic data released this past week was not too optimistic, global equity investors started looking ahead for major economies to restart and continued buying high-yield assets across the globe. The historic spike of the unemployment rate in the United States (-20.5 million job cuts in April) was slightly better than economists expected (-22M), while the unemployment rate jumped to 14.&% versus 16.0% predicted and 4.4% in February. That event gave another boost to the risk appetite based on the assumption that the leading world’s economy could recover faster than previously thought and the negative impact from the coronavirus pandemic might have been overestimated. As a result, major stock indices jumped on Friday, closing the trading week with a positive bias.
The S&P 500 index surged +3.80% this past week, while the bullish action was registered in 4 days out of 5. The bearish weekend gap was filled quickly and the benchmark continued its bullish recovery throughout the week. Technically speaking, the S&P 500 index has reached a crucial resistance level, a breakout of which might accelerate the bullish rally in the week ahead. Tech-heavy NASDAQ Composite overperformed the equities market, soaring +5.88% to 9228.4 points, the 10-week high. Besides, NASDAQ has entered positive territory, recovering from all of the losses this year. The Dow Jones Industrial Average climbed +2.70%.
Overseas indices were mainly trading with a bullish bias as well. Japanese Nikkei 225 rallied +2.85% despite dovish expectations of the Bank of Japan and worse-than-expected economic data. German DAX 30 had a bearish gap on Monday, but managed to regain strength, adding +0.39% to its value. French CAC 40 was the only loser among major indices (-0.49%) amid the lockdown extension and pessimistic economic views. British FTSE 100 surged +4.20% this past week.
The US dollar index failed to hold mid-week gains
The world’s reserve currency was gaining bullish momentum in the middle of the trading week. The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies was adding +1.86% to its value on Thursday morning. However, the index charted a bearish reversal and slid back below the level of 100 points, closing the week with only +0.43% gain. Besides, the distribution of the greenback’s power was rather selective in terms of different currency pairs.
The single European currency was hit hard on the back of fundamental concerns related to the German Supreme Court’s decision to give the ECB a three-months period to justify the bond-buying program worth several billion Euros. The fundamental environment was not in favor of EUR/USD as well. The currency pair was testing three-weeks lows at 1.0767 but retraced up and closed the week at 1.0838 (-1.28% weekly).
The British Pound was sold off across the board after the Bank of England published its Inflationary report, stating that further supportive measures are needed for the UK economy to save it from the crash. GBP/USD was trading at 1.2266 on Thursday morning, but charted a bullish rebound towards 1.2404 on Friday after better-than-expected US Non-Farm Payrolls report.
The Japanese yen remained almost flat versus the US dollar (USD/JPY -0.26%), while the Swiss Franc weakened by almost 1% as USD/CHF added +95 pips to the exchange rate. Commodity currencies rallied on the back of the risk-on sentiment: AUD/USD +1.77%, NZD/USD +1.27%, USD/CAD -1.15%. All of that price action was driven by positive economic reports and growing commodity prices.
Emerging markets currencies had a multidirectional price action versus the US dollar last week. USD/MXN and USD/ZAR dropped -3.78% and -2.54%, respectively, the Russian rouble recovered together with oil prices, while Turkish Lira kept weakening (USD/TRY +1.09% to all-time high at 7.0840).
Gold remained flat, Oil rallied
The price of gold had several failed tests of the upper band at $1722 per ounce this past week, but slid back to $1706 on Friday ($1681 weekly low). Traders and investors struggle to define the trend direction for the yellow metal amid controversial data from other financial markets and macroeconomic reports. The price of silver climbed +3.19%, while Palladium recovered from mid-week losses (-0.87%).
The oil market showed signs of a robust recovery. WTI Crude Oil price rallied +32.54% to $26.10 per barrel after the US Crude Oil Inventories report showing that the demand is starting to pick up the momentum. Brent Oil price surged +15.98% to $30.84 per barrel for the first time in four weeks. Further recovery is expected in the oil market.
WTI Crude Oil weekly technical forecast: Bullish
The black gold is on its way to recovery. The price of WTI Crude Oil charted the weekly gain of +32.54%, the second-largest bullish rally since the market crash started in February. Despite the impressive rally, the price of oil had two bearish daily candlesticks as the bulls faced a strong offer at around $28.00 per barrel. Thus oil traders have to lift the price above that defensive barrier in order to continue the recovery. Otherwise, there is a risk of another wave of the sell-off.
Technically speaking, the Fibonacci Retracement tool points to a strong resistance at $27.30 per barrel (78.6% Fibo level). If the bulls were able to close the upcoming week above that mark, then the next target of $35.09 (61.8% Fibo) will be in the market’s focus. The Exponential Moving Average with a period of 21 weeks continues playing the role of resistance curve, and comes at around the same level -- $36.05 and descending.
On the other hand, the MACD trend indicator is still bearish with the histogram far in the negative territory. Both MACD lines are still far from the bullish crossover. The 14-weeks Relative Strength Index bounced off the oversold zone and headed towards the middle level, reflecting the bullish rally. Although the weekly timeframe is rather lagging in terms of technical indicators, the pace of the recovery cannot be underestimated. The daily timeframe has signs of a bullish reversal pattern, however, it needs to be confirmed in the long-term perspective. The buy-lows trading strategy is preferable, while stop-loss orders have to be tight and traders should get ready to reverse and open short positions in case of a bearish breakout. The pivot point is placed at $25.00 and $21.00 in extension.
USD/RUB weekly technical forecast: Neutral
Although USD/RUB retraced to 73.32 last week, the technical sentiment is mixed, showing a sideways consolidation rather than a bearish reversal. The daily chart below shows that the rate went into the uncertainty zone inside the Ichimoku Cloud, while the leading span remained bullish. Both Ichimoku resistance curves are above the current rate, which points to a further bearish action in the short-term perspective. However, the bears must break the bottom band of the cloud at 72.58 before concluding the downtrend acceleration.
The Average Directional Index switched the sentiment to bearish as the surplus between -DI and +DI lines became negative. At the same time, the ADX main line is far below the threshold, underlining quite a weak bearish momentum. The lack of the downtrend power could lead to directionless trade in the week ahead. The Stochastic RSI oscillator is nearing the oversold zone, and it will be extremely important to monitor this indicator in the scope of possible bullish crossover.
When it comes to the trading strategy, speculators should keep an eye on the price of oil as the Russian Rouble depends on it significantly. USD/RUB might have a limited upside potential due to the acceleration in the number of coronavirus cases in the country and prolonged lockdown. Therefore, selling on bullish rallies and buying on bearish whipsaws might be the most reasonable approach in terms of trading the pair in the week ahead.