Low trading volume was affecting the price action in the financial markets last week. Most of the major assets were hovering around the same levels as the previous week. The absence of buyers in the U.S. equities market weighed on stock indices which dropped sharply on weekly basis: S&P500 -4.09%; NASDAQ -3.86%; DJIA -4.36%. The same tendency was noticed in Asian and European stocks. The U.S. dollar was in demand on risk aversion trading with major currencies declining: EUR/USD -0.68%; GBP/USD -0.15%; USD/JPY +0.14%; AUD/USD -1.33%; NZD/USD -1.40%; USD/CAD +0.70%. The only exception among majors was the Swiss Franc which gained strength versus the greenback: USD/CHF -0.29%. Most of the emerging currencies followed the majors but the South African Rand which continued climbing: USD/ZAR -0.95%. The only trend in the same sustainable pace was the bearish performance of the oil. WTI Crude accelerated its losses, plunging for 11.66%, testing the important psychological level of $50 per barrel. Brent Crude was trading in the same bearish momentum, losing 11.77% of its value.
The upcoming week promises to be much more volatile due to the trading volume coming back to the market after the U.S. holidays. Crucial technical levels are forecasted to be tested next week with several patterns to be checked for their sustainability. The biggest question is about the greenback’s uptrend in 2018, will it continue, or should we start getting ready for the reversal price action. Higher volatility usually means a more active trading on shorter timeframes, so we expect the currency market to be more attractive in the scope of intraday profits next week.
The inverse head-and-shoulders pattern on the daily chart that we showed a couple of weeks ago was cracked with the bear price action and lower lows. S&P500 charted the third lowest weekly close in 2018 at 2627.8 (CFD), and the daily timeframe has extended the bearish outlook for the index. MACD slow indicator shows the bearish continuation with the distance between its lines extended the gap and the histogram accelerating the bear momentum. Fast RSI is also bearish but the current indicator value is far from the oversold levels, leaving more room for the bears to keep the selling pressure. The nearest support is the static horizontal line, the lowest daily close on April 2 which currently lays at the level of 2577.8. A potential bullish reversal divergence on MACD is out of play, as the histogram crossed the zero level between two peaks, so the bears got nothing to be afraid of. We would not recommend shorting the index from the current levels, despite the large likelihood of the Southwards price action. A conservative trading strategy suggests shorting S&P500 from the descending blue dotted median line, while a possible test of the exponential moving average with the period of 21 days would be a sign of deeper retracement. Aggressive intraday traders should monitor the price action on whipsaws towards EMA21 on H4 and H1 timeframes to find the best entry levels.
Despite the general bull trend still in play for larger timeframes, the H4 technical perspective is mixed with several indicators at overbought levels. The fast stochastic oscillator is has gone too far above 80% with first signs of reversing. Bollinger bands showed bulls’ weakness with a high probability of the price to retrace towards the average line of 50%. Williams indicator suggests a bearish bounce as well, charting the same pattern that happened two weeks ago before the plunge. We expect DXY to bounce back down towards the ascending support trendline, where we’ll be looking for intraday signals to go long for a short-term perspective. The range of 96.20/50 looks attractive so far. There is also a potential of inverse head-and-shoulders pattern to be formed on both H4 and daily timeframes. The main condition for its sustainability is that the right shoulder should not be higher than the left one, so the level of 97.12 should be monitored closely in the scope of a potential bearish reversal. If the bulls failed to break it clearly with H4 and daily close prices, then we would see H&S reversal in play. In that case, we would consider shorting the U.S. dollar index.
The most popular currency pair failed to hold gains from the previous week and slid below 1.1350 support (1.1334 weekly close). EUR/USD stays offered below SMA233 since the consolidation on October 1, and the recent bearish price action started after the failed test of the same resistance curve. Moreover, the bears managed to push the price below EMA55 on the second attempt, suggesting downside continuation for the nearest future. Bollinger Bands performed bearish breakthrough with the latest close price on Friday which confirmed the southwards continuation. A re-test of the year-lows at 1.1215 is more likely than a bullish retracement with an intermediate static horizontal support at 1.13000 round figure. It’s too late to sell EUR/USD and too early to buy, as the current price is exactly in the middle of the trading range of 1.1300/1400 which is expected to remain on hands for the upcoming week. A bullish whipsaw towards intraday resistance would be much more attractive for fresh shorts than a bearish breakthrough scenario, so, we would expect a clear signal to jump into the downtrend. Conservative trading strategy recommends waiting for a re-test of the SMA233 resistance, however, such an option is less likely for the week ahead. Aggressive intraday shorts from EMA55 at 1.1378 are could bring fast profits in the range of 50/80 pips which is the scenario we’ll stick to at least for the beginning of the next week.
The selling pressure persisted for the Sterling in the past trading week, however, the speed of the descending price action eased the likelihood of another breakthrough on the downside. The trick with the British pound is that it’s still vulnerable to the fundamentals’ impact due to the Brexit story and the market sharply reacts on any headlines related to the topic. Therefore, there’s no reason to add technical indicators to the chart. The only conclusion which could be made of the recent price action should be based on the graphical analysis. The picture we can observe on the H4 chart below leaves an awful lot of questions regarding the bears’ ability to chart new lows, despite an obvious descending pattern. This picture reminds an asymmetrical triangle which can work out in both directions. The crucial level to watch for the week ahead is the cross of two dotted blue lines which is currently around 1.2782. To be precise, a range of 1.2746/98 should be monitored to understand the market’s intentions. We suppose that a clear breakthrough of the range with close price would open the door for the bears to chart new lows, while a failed test of that range would suggest a bullish retracement towards 1.2840/80 range at least. The best trading strategy is to keep the stop-loss and take-profit orders tight and not to hold positions too long, reversing several times per day. Conservative traders should stay out from the cable pairs though.
Despite the short-term timeframes turned bearish for USD/JPY and the pair tested 112.30 support in the past week, the daily timeframe remains generally bullish. The price finished the trading week between Ichimoku Cloud’s resistance conversion line and the baseline which will work as support for the nearest days. Market players’ uncertainty was underlined by the long-legged Doji candlestick on Friday due to the low trading volume. However, the recent bullish breakthrough of the upper range of the span, after the price failed to test the lower range of the span during the bearish retracement on Tuesday, makes the technical outlook still bullish for the pair. USD/JPY could try to re-enter into the span on a second bearish attempt to reverse the uptrend, however, we will be looking for such whipsaws in order to refresh long positions. The target range for such a strategy remains the same as for the previous week - 112.30/50. A stop-loss order should be hidden below 112.00 round figure in that case, while a take-profit order should be limited with the current daily resistance curve (113.13 currently). We do not expect a clear break in any direction though, so conservative traders should wait for more clear technical signals before entering the market. Selling the pair looks too aggressive as the downside action remains limited.