Whipsaws and spikes - that’s how the past trading week could be described. Most of the assets in the financial markets keep seeking direction with the weekly price action divided into two parts - one way till Wednesday and completely opposite throughout the rest of the trading week. Key resistance and support technical levels did not have any significant shifts while weekly candles have many shadows, underlying how tough is the fight between bulls and bears. Although, that does not mean that there are no opportunities to trade and make profits on technical signals, using shorter timeframes and keeping in mind general trends. Here are some of the weekly results for major assets (excluding whipsaws and spikes): S&P500 +2.0%; DXY +0.48%; EUR/USD -0.54%; GBP/USD -0.47%; USD/JPY +0.57%; EUR/JPY +0.04%; GBP/JPY +0.44%; USD/CAD +0.76%; AUD/USD +0.36%; NZD/USD +1.09%; USD/ZAR +0.45%; GOLD -0.87%; SILVER -3.96%; WTI Crude Oil -4.85%. The upcoming trading week is supposed to show several key breakthroughs, changing the technical analysis pattern for many major currency pairs.
Our suggestions for the index to reverse were correct, as the daily performance shows. S&P500 index charted a reversal Head-and-Shoulders pattern on the daily timeframe (see below), finishing the last part of it on Friday. The key movement for this graphical picture was registered on Tuesday when most of the stock indices soared, adding more than 2.5% in one single day trading. However, the bears stepped in after that, pointing to the strong resistance levels slightly above 2800 round figure. The right shoulder of the reversal pattern is almost drawn, however, we would assume an additional consolidation with some bearish whipsaws before finalizing the reversal and breaking the resistance green line. Sometimes it happens that H&S pattern has several right shoulders and the main requirement for the pattern to work out and perform the bullish breakthrough is to keep posting hi9gher lows. Another interesting observation in the scope of possible intraday support levels is that the exponential moving average with the period of 21 days comes exactly together with the dotted blue median line which works as the neckline support. We expect S&P500 to beat the resistance line and surge towards 2900 psychological level next week.
Despite the lack of higher highs on the daily chart of the U.S. dollar index, we suppose the bullish continuation in the week ahead and here is why. The mid-week bearish price action was held by 21-days simple moving average, signalling strong demand from the bulls. Two fast oscillators are still in positive territory without breaks below the 50% level. Moreover, Stochastic oscillator went off its recent overbought levels, reloading its value for the upcoming bullish breakthrough. The lines of the indicator crossed each other, pointing to the end of the bearish retracement. Relative Strength Index has a similar performance, positioning for the Northwards rally in the upcoming days. Two key resistances eyed: the highest daily close rate since June 2017 at 97.11 and the ascending dotted resistance trendline, laying around 97.50 and above. Those are the levels to watch in the scope of taking profits for the swing trading strategy. Traders who missed the brilliant opportunity to jump in the outgoing train on Wednesday last week could hope for intraday bearish whipsaws on shorter timeframes, especially one-hour. The combination of the fast oscillators works effectively as long as the trend has the momentum to keep posting new highs, as we see it currently.
The scenario we described in our latest technical forecast was in play last week. We have been expecting EUR/USD to retrace towards the range of 1.1450/1500 and the confirmation came in early Monday as the pair failed to break through the short term support curve - SMA34 on H4 chart below. We refused to buy EUR/USD, staying squared and waiting for the bearish reversal signal. The top of the expected range was exactly in line with the exponential moving average (period 244) at 1.1500 and we did not hesitate to pull the trigger, shorting EUR/USD with a tight stop-loss of 50 pips and the target slightly above 1.1300 resistance. We also watched closely for confirmations from different technical tools and one of them came from the slow MACD indicator with the lines crossing each other. Second sign to keep holding the position was seen when the price broke the same SMA34 resistance which it failed to break on Monday. So we took a nice profit of 170 pips right before the close of the week. We’ll be looking for the same trading strategy - sell highs - for the week ahead.
The weekly targets for GBP/USD have been achieved. However, the level of 1.3200 remains a tough nut to crack for the sterling bulls (1.3176 weekly high) and the pair bounced off the weekly top, finishing the trading week even below 1.3000 psychological support. The British pound has a huge range of almost 500 pips versus the greenback, charting several false breakouts intraday. The best method to find entry points and trading signals in such an environment is to place two Bollinger bands indicators on the H4 intraday chart. The default settings have to be modified in order to avoid fake signals. The period has to be changed to 34 while the second deviation should be lowered to 1 instead of 2. As the result we get a wider picture, allowing us to understand whether GBP/USD is intended to go further or reverse. The signal for long positions occurred last week and the pair went through several resistances like a hot knife through butter. A bullish confirmation happened when the price breached the upper range of the wider Bollinger Bands indicator and the cable remained between two upper lines for a while, climbing to the weekly top. We would stay away from positioning on GBP/USD as the price finished the trading week exactly in the middle of the range, leaving uncertainty regarding the future direction. We’d expect a clear signal before entering the market.
Dollar-yen is not the most volatile currency pair. Nevertheless, one of the biggest advantages of USD/JPY is that it goes one way straight to the target. The last week was not an exception for Japanese yen which kept declining versus the greenback, charting a new high around 114.00 static resistance and finishing the trading week slightly below it (1.1379). We expect the pair to climb into the range of 114.25/55 next week and swing traders can keep holding the longs from October’s lows around 111.50. Intraday traders could use shorter timeframe like H1 with Ichimoku Cloud trend indicator to monitor entry points on the bearish pullbacks. The chart below shows how many signals occur on Ichimoku when USD/JPY is testing support levels. Buy-lows is the best trading strategy for the week ahead.
One of the strongest performers among commodity currency pairs was USD/CAD, closing the trading week above 1.3200 resistance, the first time since July 2018. The pair remains well above the simple moving averages with the periods of 55 and 133-days. Moreover, the bulls managed to break through the ascending median line (dotted blue) which used to hold daily prices since mid-September. The angle of the ascending pattern points to the bullish acceleration and we would not be surprised to see USD/CAD above 1.3300 figure next week. We would not jump in right on the weekly opening, as the suggestion is to wait for better prices on bearish retracements intraday. So, the shorter timeframes have to be monitored in the scope of potential entry points for fresh long positions in the medium-term perspective. The absence of any clear technical background intraday does not allow small accounts to trade the pair though, so the risk management rule is applicable here.