Trend reversal was the key factor influencing major currency pairs this past week. The world reserve currency - the U.S. dollar - tested year-to-date high levels in the beginning of the trading week, however, bounced back down as the result of two extremely volatile days. Almost all of its major peers gained strength. So, Australian and New Zealand dollars extended the growth, completing reversal technical outlook. Japanese Yen and Canadian dollar were among the modest winners while Euro charted bullish engulfing pattern on the weekly timeframe. The only exception was the British pound with fundamentals overwhelming the technical picture. The Sterling performed one of the weakest weeks recently. Emerging market currencies surged with South African Rand as one of the strongest currencies (USD/ZAR -2.64% weekly). In other markets, oil prices, both WTI Crude and Brent, extended losses, falling six weeks in a row, while gold and silver reversed after dramatic sell-off last week. Global equities were trading with a mixed bias. Long shadows on weekly charts underline the high level of the volatility weighing on major stock indices. The upcoming week will be crucial for this trend reversal in order to show the sustainability of the new trend.
The U.S. dollar index, measuring the volume-weighted basket of six major currencies, charted first signs of the bull trend reversal. Despite the upside weekend gap and the continuation run towards the high levels at 97.69, the frist time since June 2017, index met heavy selling pressure. The weekly result is not so scary for the greenback bulls so far - the index lost only 0.65% of its value. Nonetheless, the daily timeframe has several technical signals for the uptrend to reverse in the very nearest future. First of all, there is a clear bearish divergence on slow MACD indicator which is a rare and very strong selling signals. Second, MACD lines crossed each other and the hystogram turned negative. Third, the divergence is confirmed by fast RSI oscillator which needs to cross the 50% level in order to have the bearish continuation and the divergence to work out completely. Fourth, the daily price closed below the 21-days simple moving average, the first time since September 27 this year. Those four reasons are enough to stop buying DXY at least and stay square for a while, having a wait-and-see position. The MACD bearish divergence should be worked out before the uptrend to resume (both lines have to cross zero level), even if it would be a sideways consolidation range. Although the Northwards price action was comparatively strong in 2018, we suggest further weakness for the U.S. dollar index in the week ahead.
The strongest support level in 2018 has been breached this week by EUR/USD after two unsuccessful attempts earlier. Monday was the breakout day for the bears when the pair went through 1.1300 level as a hot knife goes through butter. Moreover, EUR/USD charted new 16-months lows slightly above 1.1200 handle. An epic two-days fight between bulls and bears followed after that. Buyers were fighting for the last defence barrier, trying to prevent EUR/USD from losing the ground. Sellers were pushing at their maximum power to hold the exchange rate from reversal bullish engulfing. The bulls won. The most popular currency pair sharted an impressive upside run four days in a row, finishing the trading week well above 1.1400 handle, breaking through several local resistances. The same divergence and technical signs as for DXY are applicable here but in an inverse mode. The daily timeframe suggests the further strength of EUR/USD with two key targets to monitor in the upcoming week: 1.1500 and 1.1550. We would not go long right away by the market price though. The best tactics for traders looking for an entry point is to wait for a bearish bounce towards 1.1350/75 support range before pulling the trigger. Such a nice gift would be a perfect technical entry for short-term and swing traders.
The sterling is currently one of the weakest currencies among majors. GBP/USD lost 1.1% of its value despite the greenback’s weakness across the board which points to further slide of the pair. All of the technical indicators are extremely bearish for the pair due to their lagging nature, taking in count the latest price action. This is the reason why we did not include any of them into the weekly technical outlook on the daily chart below. The graphical analysis seems to be more effective in such conditions and we have several conclusions to stay away from shorting GBP/USD at these levels at least. Despite the selling pressure, the bears failed to shart significant achievements of the downtrend, having three consequtive higher lows on the daily chart. Yes, the price is well below the 55-days exponential moving average which worked as the resistance level, holding the bulls from further upside gains during the past week. Yes, the descending channel has been breached by the price and the bullish bounce was limited by its lower line on Friday. However, the lack of progress in the downtrend leaves questions about its sustainability. The British pound is a tricky animal and it will suck all of the blood before reversing and going in the right direction. With that in mind, we would wait for a clear signal before entering the market. Such a sign could come if the pair will manage to break EMA55 with daily close price, slightly above 1.3000 psychological level.
The daily timeframe remains bullish for USD/JPY despite the technical reversal signals on shorter timeframes and Friday’s decline of 0.68%. Ichimoku Cloud trend indicator works effectively for Japanese Yen pairs and it clearly shows the bears’ weakness as the price failed to get inside the span and break through the conversion line support. The static support of 112.80 has been important for several years, dividing the chart into two parts. As long as the close weekly and daily prices remain above it, the upside risk will persist for the pair. We might observe a consolidation though before the Northwards price action would resume. Bearish whipsaws are possible towards 112.50 handle, and we would consider that price as attractive for buying USD/JPY in the long-term perspective.
Aussie has completed the reversal pattern on the daily chart. The first sign came when AUD/USD charted the double-bottom on October 29 with higher lows. There were certain doubts about the bulls’ ability to continue the upside run as the price failed to breakthrough the Ichimoku Cloud upper line of the span on November 7. The bearish bounce happened as the result of that attempt. But the last week’s price action convinces in the bullish reversal as the cloud turned positive (the first time since April 2018) and the price performed the clear breakthrough of the span’s uncertainty. Buying lows would be the perfect trading strategy not only for the week ahead but also for a longer period.
Volatility is the second name of the South African Rand. Traders would not find any better asset in the currency market in order to ride a roller coaster price action. The impressive bull correction of 600 pips in a four-day strike was over around the resistance level near 14.500 handle, and the bears stepped in with heavy selling. As the result of that dramatic reversal, USD/ZAR fell another 500 pips with the same speed, remaining one of the most fast-moving currency pairs. The further slide is likely, taking in count the greenback’s weakness across the board and a possible change in the general trend.