Technical retracement was the main trend in the last trading week of October. Most of the assets bounced off the key resistance/support levels showing preliminary signs of a possible reversal in the October’s trends. The U.S. stock indices managed to recover previous week’s losses. The greenback was trading with a mixed bias versus its major peers. British pound, Australian and New Zealand dollars were among gainers this past week while Euro, Japanese Yen and Swiss Franc weakened. Emerging markets currencies had an impressive bullish run with the worst currency this year, Argentine Peso, leading the gains. Precious metals remained flat and WTI Crude oil accelerated its losses, breaking support line of the ascending bullish channel this year. The upcoming trading week is going to answer the key question for the technical analysis: should we expect the reversal in major assets’ trend in the financial markets or is it just a healthy retracement before continuation?
The long-term technical outlook remains bearish for most of the U.S. stock indices including S&P500. However, the short-term charts have preliminary signs of the bullish reversal with all of the technical indicators changed their sentiment. Weekly timeframe suggests a bullish bounce from the 89-weeks Simple Moving Average, exactly as we showed it in the previous forecast. So the year’s uptrend remains in play so far for the benchmark. The daily chart is still bullish, as the index failed to break through the 21-days Exponential Moving Average and bounced back down from that resistance on Friday. The intraday H4 chart (below) is already bullish as MACD histogram turned positive, its both lines are in uptrend mode, RSI fast oscillator crossed the 50% level and the price itself crossed the EMA21 from downside up, the first time since October 4. An important condition is required to complete the bullish reversal on daily timeframe: the index must cross EMA21 with the close price (the resistance is placed at 2754.85 currently).
Although the weekly result of the U.S. dollar index was almost flat (+0.06%), the technical perspective remains in the upside direction. The daily chart below has a classical bullish breakout scenario when the former resistance becomes support, and the price comes back to that level before posting new highs. Another bullish factor is the highest daily close rate from June 17 at 97.11. Besides the static support at 96.12, EMA21 curve worked as the strong level to lift the index and hold it from the further slide. The same way it happened in the middle of October when DXY started its bullish run exactly from EMA21. Both MADC and RSI indicators are in positive territory, so we expect further strengthening of the index.
The most popular currency pair in the Forex market remains offered below 1.1462. Moreover, EUR/USD retested the year’s low slightly above 1.13 figure this past week. As long as the EMA21 resistance holds, MACD lines are in the bearish mode and RSI oscillator is below 50% mark, EUR/USD is vulnerable to further weakness. However, we would stay away from shorting the pair at current levels as bullish whipsaws are possible during the upcoming week. Euro bulls stepped in on Thursday and the single Europen currency had an impressive retracement that day, recovering more than 100 pips. Intraday momentum is mixed, so we would consider a range of 1.1450/1500 to watch closely for selling reversal signals. Any bearish divergence would be enough for the sellers to continue the pressure on the pair.
The British pound, in contrast, managed to recover most of the previous week’s losses, adding 1.12% to its value versus the U.S. dollar as the weekly result. An important psychological round figure at 1.3000 was tested from downside but the bulls failed to breakthrough. The price action was similar to EUR/USD as GBP/USD tested the year low this past week. However, the difference between the two lows is significant (the latest one is 1.2707 while the previous low was at 1.2664), and the double-bottom reversing pattern on the daily chart might have a bullish continuation as the result. The trigger for the bulls was the bullish divergence on MACD indicator and GBP/USD worked it out, bouncing up more than 300 pips in one single day. The upside risk remains solid as the price breached SMA89 and tested median line (dotted purple on the H4 chart below). We expect the pair to keep strengthening in the upcoming week with key resistance level at 1.3100 and 1.3240 in extension.
Our suggestion of the bullish continuation was correct for USD/JPY last week. After the test of strong support level, the bulls accelerated the pair’s momentum and one more important puzzle has been added to the overall uptrend continuation picture: USD/JPY breached Ichimoku Cloud conversion line which was the nearest resistance. Moreover, the psychological barrier of 113.00 has been overcome, and the road to 114.55 high is open now. An intermediate resistance lays on the ascending median (dotted blue line on the daily chart below). However, it would not be so easy for the bulls to break through 115.00 static resistance from the first attempt. So, we would recommend taking profits from long positions on the approach to that level and staying squared until the next bullish signal to occur. There is no sign of any significant change in the uptrend for USD/JPY except some slight temporary slide towards 112.80 support level which should be considered as a gift from the market to open one more fresh long position.
Taking in count the speed of pound-yen recovery this past week and how fast the bulls pushed the pair back into the span, we would assume a bullish breakout for GBP/JPY next week. One more factor in favour of such a scenario is that sterling loves false breaks downside before flying sky-high, kicking out of the market small short-term traders. In addition, GBP/JPY crossed the conversion line by the daily close price. Therefore, we would expect the pair to break through the nearest resistance of the upper range of the Ichimoku Cloud. If that happened, the bulls would have an open door to lift the pair as high as 151.20/152.50, the levels never seen since April 2018. A breakthrough strategy might be successful here with a postponed buy-stop order to place slightly above 147.27 mark.
An extremely important event happened on USD/CHF pair. Technical outlook became even more bullish for the pair as the latest weekly close price (1.0024) is the highest since April 2017 (1.0017). Moreover, the weekly level was noticed above 1.0100 figure which creates the bullish ‘higher highs’ continuation pattern. The crucial level for USD/CHF bulls will be at 1.0148, the price from which the largest crash started in January 2015, creating the liquidity crisis and washing out of the markets several huge FX brokerage companies. Liquidity providers had to increase the margin requirement for the Swiss Franc pairs dramatically as that plunge caused a lot of troubles for the financial sector worldwide. USD/CHF is approaching the highest levels in 3.5 years and the bottom of the financial crisis in 2019. This price action is crucial for the greenback overall technical picture, as USD/CHF has always been the leading indicator for dollar pairs.