What a tough week it was for traders in the financial markets! The first trading cycle in December has gone under the sign of a drastic reversal in U.S. equities, struggling to break through important technical levels after the recent 5-day bullish run. Stock indices dropped, erasing all of the gains from the previous week, which was one of the strongest performances in seven years. S&P500 index ended the trading week with -4.56% result, NASDAQ100 lost -4.76% of its value, while DJIA30 was negative for -5.39%. The sell-off in Europe was also brutal: DAX30 crashed -6.47%, FTSE100 -2.90%, CAC40 -5.86%. Asian stock tumbled as well with NIKKEI225 benchmark declining for -4.20%. Another crucial event had happened in U.S. bond market, as 10-year Treasury yields went off seven-year highs, and the yield curve with short-term 2-year yield reversed. Precious metals surged with Gold and Silver leading the weekly gains of 2.14% and 3.08% respectively. WTI Crude and Brent oil prices were trying to recover the previous losses, however, failed to hold the achievements, finishing the week with slight gains of 2.92% and 3.71%. Currency markets were also vulnerable to sudden reversals and volatility with the general weakness of the U.S. dollar across the board. Euro, Swiss Franc and Japanese Yen gained strength, while commodity currencies weakened and the British Pound was flat versus the greenback. All of those shakeouts signal a potential turmoil weighing on traders’ sentiment, adding uncertainty and fuelling fears. The last time such volatility was noticed in the period of the financial crisis in 2008.
The bulls were unable to develop the upwards movement and break 89-days simple moving average which allowed us to draw the upper horizontal line 2814.0 of the sideways channel. As long the index does not chart higher highs and/or lower lows, the only formation that could be chosen is sideways range for the graphical analysis of the daily chart below. At the same time, S&P500 bears did not breach the lower horizontal support of the channel which is currently placed at 2627.8, the lowest daily close price since November 23. The big question about the direction of a possible breakout rises because of the amplitude of that range - it’s almost 200 points or 7.4%. Such a huge distance between two peaks underlines the market uncertainty and makes us believe that the support will be breached rather than resistance. Moreover, the current weekly close erases all of the gains in 2018. The last time S&P500, as well as other major stock indices, closed the year with a negative result, was the brutal year of the financial crisis in 2008. From the bulls point of view, one of the last defence lines before a potential crash would be 2578.3, the lowest daily close on April 02 this year. However, we suggest that an upside whipsaw is possible before going South, given the recent volatility. Two additional technical tools would help traders to asses the momentum and identify a potential depth before opening fresh short positions - EMA21 curve (green) and Williams %R oscillator. As the daily chart shows, EMA21 worked well as the support during the bull market since June 2018. The same tendency was seen recently, three times at least, so shorting S&P500 from EMA21 (if not breached) would be the best trading approach from the technical point of view. Williams %R oscillator has to be monitored as well, with -50 as the key level.
The lack of bearish continuation (higher lows), together with several attempts of the price to break through 1.1400 round-figure static resistance, made us changing the technical perspective for EUR/USD, at least for the weak ahead. The formation charted by the price on H4 timeframe (see the chart below) does not look like a consolidation pattern, it has more of reversal signs with a huge asymmetric triangle in play. Additional confirmations came in from two technical indicators: the price is clearly above SMA89 and fast RSI oscillator is supported by a similar green trendline, staying well above 50% level. We expect the most heavy-weight currency pair to target 1.1453 next week (the highest daily close since October 23). The blue dotted ascending channel might start a new uptrend with the resistance line pointing exactly at that level. The lower support line of the channel should work as buying opportunity on bearish whipsaws for conservative traders (1.1340/60 range). Stop-loss orders (or additional long positions) should be hidden below 1.1280/1300 zone if the retracement depth would enlarge the amplitude. On larger timeframes, the daily perspective looks optimistic for Euro bulls with MACD histogram in positive territory and both lines rising. Daily RSI had also crossed the 50% level last week. However, the long-term downtrend might be still on the cards as long as 89-days simple moving average holds the price below (1.1494 currently). Therefore, long positions should have a tight take-profit order.
The long-term uptrend is under a threat on the daily timeframe. Ichimoku Cloud trend indicator shows an uncertainty with the price placed between baseline and conversion line resistances (which used to work as support levels) and the cloud itself (support levels at the upper and lower lines of the span). Higher lows and the failed test of the span’s bottom (Thursday’s candle long bearish shadow with the lowest weekly price at 112.16) do not allow us to talk about the trend reversal so far. Ichimoku did not turn bearish yet, so we might see further attempts to test the resistance tight range of 113.13/25. Given the recent uncertainty, we would stay out of the market for USD/JPY unless a clear signal will indicate further direction. Shorter timeframes turned negative though and selling highs would be a more correct trading approach rather than buying lows, in aggressive intraday scope. A flat outcome is likely for the week ahead with both upper and lower ranges tested, without any clear breakthrough.
The median line that we showed last week worked well as take-profit level after AUD/USD accelerated the bullish run on Monday last week. The weekly high was charted at 0.7393, however, the bears stepped in with the heavy-volume selling. The U-turn happened on the daily timeframe, reflecting U.S. equities’ price action, and AUD/USD plunged 200 pips, closing the week two pips above 0.7200 round figure. That’s an enormous volatility for the Aussie, but, given the fact that the market is still in reversal conditions (the uptrend is not still in play), such roller-coaster might happen. The graphical analysis shows us two possible scenarios. The first one is the widening formation (blue upper line and middle green line) which traditionally is in play for an uncertain market. The second scenario could be a more conservative comeback to the green ascending channel with a slow sideways range with an upper bias. Anyway, as long as daily prices are above the lower green line, we have to admit the bears’ inability to push AUD/USD back to the downtrend. Buy-dips is still preferred trading strategy with 0.7150 level as an attractive price to go long. Although, that would be a rather aggressive approach, as the speed of the latest bearish slide raised a lot of questions about the uptrend sustainability.
In contrast to the previous currency pair’s bullish achievements and some signs of the trend reversal, AUD/JPY long-term technical outlook remains extremely negative. The Ichimoku Cloud trend indicator on the weekly chart below is completely bearish with a huge range of the span, pointing to the Southwards direction to persist. The latest bullish retracement toward the cloud’s lower line gave an awesome opportunity to renew short positions. Moreover, the level of 84.00 yen per one Australian dollar has been a tough nut to crack for the bulls since the price plunged below it in February 2018. Six failed attempts (!) to break that resistance point to a huge volume of postponed sell-orders placed there. Those traders, who missed such a brilliant chance to join the party, might consider looking for bullish whipsaws on shorter timeframes for using sell-highs trading strategy.