Two key features would easily describe the price action in the past trading week - low volume and low volatility. The currency market is seeking further direction with most of the major pairs hovering around important technical levels. This rapid change in trading conditions compared to the previous trading week forced traders to change the trading tactics as well. Tight stop-loss orders and often reversals - these measures were the most effective in the current environment. Several currency pairs like USD/JPY, AUD/USD and NZD/USD bounced off the recent lows, however, failed to break through important technical resistances, staying in the same technical sentiment in general. Sideways consolidation ranges were in play for the largest volume-weighted currencies - USD and EUR. Emerging markets currencies showed a surprisingly strong performance again. WTI Crude oil kept falling while gold and silver remained flat. The headliners of the previous trading week - equities - had recovered some of the latest losses significantly during the mid-week, however, slipped back to lower rates and finished the trading week almost unchanged.
The change in trading condition forced us also to watch the weekly price action under the closer scale, and the one-hour timeframe was preferable to trade on. The hourly chart below shows all the weekly performance for the U.S. dollar index which was mainly positive as the result. However, DXY faced some pressure from bears at the beginning of the week and the index slid towards 94.79 (weekly low). Three strong signals gave us a brilliant buy signal: bouncing long shadow of the candle, bullish divergence on MACD indicator confirmed with the same bullish divergence on RSI fast oscillator (green lines in indicator window). The opening weekly level at 95.34 was consolidated and the index continued climbing till reversal signal occurred. The opposite divergences on the same indicator made us not only to take profits from long positions but also to open fresh shorts for the greenback. That bullish performance is more likely to continue in the week ahead just because the latest bearish pullback on Friday was limited by 38.2% Fibonacci retracement level. We’re squared here until next clear and strong signal.
The most popular currency pair stays in the sideways range in October. EUR/USD started the past trading week with the bullish bias and re-tested local high from October 1 (1.1621). The test was not successful for the bulls and EUR/USD felt back to monthly lows (1.1431), consolidating around the middle of the range (1.1530). October’s low represents strong defensive level for the bulls and lots of postponed buy-orders are placed there, so we took profit of the shorts from Tuesday a bit early - 1.1450. The bullish divergence which happened on MACD (delayed the workout) and RSI (the third downside bounce triggered the bullish spike). We had an idea to jump in longs for EUR/USD, however, decided to stay out, as the overall market sentiment remains bearish for the pair. We would expect a bullish whipsaw with strong sell-signals to enter the market again.
Sterling is vulnerable to Brexit story and the fundamental part of the analysis rather than technical indicators. This is why the hourly chart below does not contain any of them except the Simple Moving Average with the period of 89 hours. Nevertheless, several conclusions could be made from a technical point of view. The further bearish sentiment is more likely for the very nearest future. The price is below SMA89, the latest bullish whipsaw on Friday was limited by it essentially. A series of lower highs (R2 and R3) has halted the bullish run and the bears took the price action under control. We might see a test of support zone of 1.2950/3000 in the week ahead. However, we suppose that the bulls would defend these levels aggressively and the general blue ascending channel should stay in play for GBP/USD. Weekly close rate (1.3066) is above 1.3043 static support (it used to be resistance R1) and the consecutive number of higher lows (S1-S4) makes the chances for further overall strength for the pound. Short-term intraday traders could consider seel-highs trading strategy with tight stop-loss and take-profit orders. Long-term daily traders should look for a buying opportunity around 1.3000 psychological level or slightly below, depending on the price action in that support range.
Dollar-yen reversed. That’s the main conclusion from the last week’s price action. USD/JPY found the bottom at 111.60 on Monday Asian trading session. That level is slightly below daily span of the Ichimoku Kinko Hyo indicator. The hourly chart below had several further confirmations for that reversal as the price crossed the span and all of the lines turned positive. Ichimoku indicator gave a couple of buy signals intraday: the pullback to the upper range of the span.
On Wednesday and the bearish test of the span’s lower range on Thursday (both in the range of 111.93/98). The next pivot point to monitor is 112.82, and if it will be breached, then we should expect further strength for USD/JPY towards 113.40 resistance and 114.50 in extension.
The overall technical outlook is mixed for Aussie which stays in a tight consolidation range after several consecutive weeks of tough losses. That fact gave us a perfect chance to play ping-pong with AUD/USD. All we put on the hourly chart is the Bollinger Bands indicator with modified settings (period 34 instead of 20) just to avoid false breakout signals. We bought AUD/USD three times at 0.7100, took profit and reversed, selling it four times at 0.7150 this past week, according to BB signals. The range of 50 pips seems to be not much of the bargain, however, if you multiply it by 6 then you would get pretty good weekly profit. The same sideways range is expected for the week ahead unless the range will be breached clearly. Tight stop-loss orders (15-20 pips) will keep your account growing with sell-highs and buy-lows trading strategy.
Traders who love adrenaline should watch USD/ZAR as one of the most volatile (and profitable) currency pairs. This pair has the range as well, but in contrast to Aussie, the range of the South African Rand is 1000 pips. We have been showing the impressive price action of the pair in the previous forecast, and USD/ZAR kept falling in the past week as well, reaching our target zone at 14.10000. The ‘head-and-shoulders’ reversal pattern occurred on the hourly chart (see below) and the momentum shifted towards bullish. Moreover, the neckline has been breached and it works as the support now, so, we expect the pair to come back to the middle of its huge range around 14.5155.