From the technical perspective, the financial markets were influenced by retracement in the vast majority of sectors. Most of the assets eased off the recent highs, including stock indices, commodities and several currency pairs. It would be too early to say about the trend reversal, as some of the analysts started to predict, but the depth of such a technical correction might be significant and traders should be cautious from opening aggressive positions. One more interesting fact to be noticed about the U.S. dollar: it has been growing versus most of its peers (EUR, CHF, AUD, NZD) but the structure of that growth was different compared to the third quarter. Japanese Yen pared all of the weekly losses, while the British pound was even stronger than before. Let’s dive deep in the technical outlook for some of the currency pairs.
The uptrend continues for the U.S. dollar index measuring the volume-weighted basket of six major currencies versus the greenback. An obvious bearish influence was noticed at weekly high levels though (96.12 high, 95.60 close) and the index lost some of its gains. Anyway, the bullish outlook remains the same for DXY with prices staying in the same ascending channel. There was a short-term bullish breakout which was false, but bulls tried a water above 96.00 resistance and the upcoming test of that level could be more successful. The bearish pullback which followed the false breakout was supported by the simple moving average (34 period). Fast RSI oscillator could not breach the 50% level and stayed in the positive territory. MACD indicator eased from extremely bullish levels, but the histogram turned negative and that fact avoids a bearish divergence to be created. The range of 96.12/48 remains the same target for the week ahead, so buy-and-hold trading strategy should be the most profitable for the greenback.
The single European currency stayed in the same tight range versus the greenback, though with a slight bearish sentiment. We expect the pair to test 1.1462/50 support range in the first half of the trading week ahead. Traders should keep the stop-loss and take-profit (especially!) in very tight ranges, as bullish reaction might be extraordinary on approaching the support levels, and EUR/USD could have bullish bounces during the next trading week. MACD indicator has to be reloaded before bearish continuation, otherwise, bullish divergence could occur and the consolidation period might take longer in that case. So, we think that EUR/USD would continue with the same slow pace of slightly bearish sentiment.
We stay bullish on USD/JPY, despite the recent bearish retracement which erased all of the weekly gains for the currency pair. The weekly chart shows a reversed hummer candlestick with a long shadow on the upside and small body of the last week’s candle. But several technical signs keep showing optimistic performance for the bulls: Daily Ichimoku Cloud indicator is completely bullish with the span and the lines in right order to continue the uptrend; the latest bearish pullback is supported by the conversion line which works perfectly as the support line during any trend, indicating the best depth to renew long positions; the dotted median line which works as the resistance on the daily timeframe has not been tested yet, and bulls should not miss such an opportunity to push USD/JPY above 115.00 where a lot of sell orders are placed. We suggest that dollar-yen should end up the week at least above 114.50, having tested 114.75/115.00 resistance. Buy-on-dips trading strategy is applicable for the pair, and any continuation of the recent bearish correction should be considered as a gift from the market. The next support is seen at 113.10/50 levels.
Sterling was one of the strongest currencies among majors last week. GBP/USD gained on the weekly basis, closing the week above 1.3100, despite the greenback’s strength. That fact confirmed our suggestions about a possible reversal in the long-term downtrend for the pound pairs. The four-hour chart below has a false breakout of the widening bullish reversal formation (1.2921 weekly low), which always happens with cable when the bulls are intended to have an upside run. GBP/USD price got inside the Ichimoku span and both baseline and conversion line crossed each other signalling a bullish continuation. The nearest support is placed in the range of 1.3025/70 and that depth has to be considered as attractive for aggressive longs with targets of 1.3125 and 1.3200 in extension.
Aussie was one of the weakest currencies versus the greenback and pound. The recent downtrend renewed at much faster pace on Monday when AUD/USD slipped below 0.7200. The pair was under the bearish pressure throughout the whole week and the only support was found at 0.7039 (weekly low). The absence of any significant bullish pullbacks and the angle of descending Bollinger Bands indicator point to further weakness of AUD/USD with next support levels at 0.7000 (psychological level) and 0.6850 in extension (3-year low from January 2016). Sell-highs trading strategy should be the best one for the week ahead, despite some preliminary signs of oversold conditions. There are no signs of bullish reversal yet from the technical point of view.
The divergence between Euro and the British pound versus the U.S. dollar created the bearish pressure on EUR/GBP cross-rate which accelerated the losses in the past trading week, sliding to the levels never seen since July 2018 (0.8773 weekly low). The support line (green) on the H4 chart below has been breached. That line used to hold prices in September, and if the bulls would not be able to get EUR/GBP above that line, we might see further weakness for the pair with the nearest targets at 0.8710/30. Although, a bullish retracement is needed for the downtrend to resume, as oscillators have to be reloaded. We expect EUR/GBP to bounce up to multiple resistance in the range of 0.8800/20, and fresh short positions would be attractive from there.
One of the most profitable currency pairs to trade was GBP/AUD in the past week due to the same divergence as for EUR/GBP. The British pound was stronger than the greenback while Aussie showed extremely weak performance. That caused an unusual bullish performance of GBP/AUD: +445 pips! All of the technical indicator intraday are extremely overbought amid that surge, but there are no signs of reversal yet, so traders should stay away of shorting the pair. Moreover, longs should be considered on bearish bounces down to 0.8400/50 support range. The H4 Bollinger Bands middle line and median support line are deep enough for the uptrend renewal.