The last trading week of September was volatile and rather active in the financial markets. The second half of it went under the light of the U.S. dollar strength across the board. Most of the major currencies lost a significant part of their value versus the greenback, commodity currencies and emerging markets assets were going down as well. Several technical levels have been breached and some currency pairs have significant achievements to continue the recent trends in the same direction. One of the best currency pairs to trade on was USD/JPY, strengthening the third week in a row. In other markets, weakness of precious metals should be noticed together with enlarged demand for oil, both Brent and Crude WTI. The U.S. and Japanese equities continued to rewrite historical record highs.
The past trading week started with a bearish test of 93.80 support for the U.S. dollar index. That eight-hours slide was limited by dollar bulls, stepping in an attractive price for the index (blue arrow on H4 squeezed chart below). There was also a volatile H4 candle during the Federal Reserve meeting in the U.S. on Wednesday but the only thing which left from that bearish failed attempt was just a shadow on the candle. The downside whipsaw cased a bullish spring and pushed the index far above the last week’s lows, soaring three days in a row. An important technical buy-signal occurred when three events happened at the same time: the index breached the exponential moving average (period 55), MACD lines crossed the zero level, turning the indicator to the bullish mode and fast RSI oscillator went to the bullish territory after crossing 50% level. Such a strong bullish spike can not reverse just like that, and we suggest a bullish continuation throughout the whole next trading week for DXY. The nearest target is rather close: 95.69, which is the highest close rate since August 23. An ascending median line which used to work as the support line during the greenback uptrend in May - July 2018, comes around here as well and attracts bulls. A more long-term target is placed at 96.90 - yearly highest close. But before any further bullish steps, the index should reload RSI and other fast oscillators which are extremely overbought intraday. The reload process could happen even during a sideways consolidation in a low-activity period (for example, Asian trading session), so traders should monitor the market momentum and jump in with any sign of price action activity.
The single European currency gave a good high for fresh aggressive short positions on Wednesday. EUR/USD bears used that opportunity to sell the pair and impressive 200 pips were the 2-days profits as the reward for a risky entering. Several supports has been breached: EMA55 and the bottom line of the ascending channel since mid-August. MACD is extremely bearish, RSI is not oversold yet (H4 chart), so the bearish continuation is more likely. Although, there is a suggestion that EUR/USD weakness might be limited somewhat, especially on the approach to 1.1500/1530 support zone where a lot of postponed buy-orders are placed. The bullish bounce on Friday close confirms more demand for the pair, and weekly close was not able to break through 1.1600 level. Sell-highs strategy would be the best one for intraday traders next week. RSI bounces to 50% level might work as a perfect technical signal to pull the trigger.
We would stay away from sterling shorts and here is why. Despite the clear bearish double-top which has been formed this week, daily Ichimoku is still in a bullish mode with span and lines are set to continue the recovery. A psychological support level at 1.3000 has not been breached by weekly close price, and weekly Ichimoku Cloud indicator comes in a divergence with daily timeframe which creates some sort of uncertainty from the technical point of view. Intraday H4 chart below has a widening formation which is traditional for the pound reversal pattern. Current prices are also supported by the Fibonacci Retracement level of 50% (1.2974) from the bullish price action starting from August 15. Sterling is also supported by cross-rates, especially GBP/JPY which had rather limited bearish slide this past week. Further South direction is possible for GBP/USD but we assume it will be limited as 1.2950/75 support range looks too strong for bears to break it through. Sideways consolidation is more likely.
Japanese yen was one of the weakest currencies among the majors this past week and USD/JPY was one of the most profitable currency pairs to trade on. Three attempts were enough for bulls to break through 113.17 resistance which never happened since January 2018 (!). Next target for USD/JPY bulls is the range of 114.30/114.75 (top levels of the price in May - June and November 2017) and 115.00 in extension. Any bearish pullbacks to H4 Ichimoku baseline and conversion line supports have to be considered as good buying opportunities for the pair.
We are still long on GBP/JPY despite the recent bearish pullback and here is why. The squeezed H4 chart below has a clear bullish continuation pattern - a symmetrical triangle or a flag. Prices have a sequence of lower highs and higher lows, and this pattern should be breached above. Secondly, close prices are supported by the exponential moving average (period 55). Longer timeframes confirm the bullish sentiment for GBP/JPY. The daily chart has higher highs with bullish Ichimoku Cloud indicator and prices above baseline support (daily close prices, only shadows are below). The weekly chart is more mixed with the reversal pattern to be completed. Temporary downside whipsaws are still possible and they should be considered as a perfect buying opportunity for aggressive traders. Support levels in the range of 147.15/40 could be attractive for bulls to step in if the market would be so kind as to give them such a gift. Of course, trading GBP/JPY is like trying to catch a falling knife, but the potential reward is worth of risk for deep accounts.
Crude Oil WTI (USOIL): Bullish.
One of the most interesting events from the technical point of view last week was the bullish breakout of WTI Crude Oil. Commodity price closed the trading week at $73.49 per barrel which is the highest level since July 02 2018. Oil bulls are very close to the year top price at $75.24 and it is just the matter of time when the price action is going to test it. An important median line (green) has been breached last week, signalling bullish acceleration. Bollinger Bands indicator signals a bullish continuation as well. Buy-dips trading strategy would be the best here with an attractive range of $72.40/75 to jump in fresh longs for WTI Crude Oil.