Whipsaws, sudden reversals and enormous volatility - that’s how we’d describe in the financial markets in the first week of the new year 2019. Several assets made historic achievements this week. One of the most illustrious examples was a sudden plunge of USD/JPY on Thursday. The currency pair performed a similar whipsaw as it happened to the British Pound in October 2016 and Swiss Franc in January 2015. Global equities weren’t an exception with dozens of shadows and tails on daily candlesticks. Dow Jones Industrial Average, for instance, declined by almost 500 points on Thursday and soared more than 700 points on Friday. The overall weekly performance for stock indices was as follows: S&P 500 +1.70%; NASDAQ +2.22%; DJIA +1.21%; DAX30 +2.77%; CAC40 +0.60%; FTSE 100 +1.54%; NIKKEI 225 -0.47%.
The foreign exchange market was also vulnerable to unexpected changes in traders’ sentiment. US dollar index weekly candle had tails on both sides with a very small body of the decline of 0.21%. DXY was testing technical support level around 95.65 on Tuesday, then surged to 96.96 resistance on Wednesday, ending the trading week slightly above 96.00 psychological round figure. EUR/USD slipped below 1.1400 support (-0.44% weekly) after a failed test of 1.1550 resistance level. Other currencies were also stronger versus the US dollar at a different pace though: the British Pound (GBP/USD +0.28%), Swiss Franc (USD/CHF +0.23%) and New Zealand dollar (NZD/USD +0.28%) had a comparatively low price action, while Japanese Yen (USD/JPY -1.54%), Australian dollar (AUD/USD +1.02%) and Canadian dollar (USD/CAD -1.91%) gained much more strength versus the greenback. Emerging markets currencies were also surging this week with South African Rand leading the gains (USD/ZAR -3.26%). In other markets, Gold was testing $1300 per ounce, the first time in a year, while WTI Crude oil had one of the strongest weeks since June 2018 (+7.10%). The upcoming week is expected to have a similar volatile performance for most of the financial assets and here is why.
Japanese Yen was extremely volatile this week. USD/JPY was plunging for more than 500 pips (-4.96% at the weekly bottom of 104.78 yen per dollar). The last time it happened more than 10 years ago, in October 2008. The pair breached multiple technical supports with the very first attempt which is unusual for such a technically accurate asset as dollar-yen. The first level was Ichimoku’s upper range of the span at 109.66, the mark that supposed to bounce the price after the first approach. Secondly, USD/JPY went through the bottom range of the span support range as the hot knife goes through the butter without any defensive price action by the bulls. The most crucial period for dollar-yen was Thursday’s early Asian session, right after New York close. Thin market conditions, low trade volume and absence of the vast majority of human traders due to the holidays period gave a brilliant chance for offshore stop-loss hunters to push the market lower by 417 pips (3.7%) in one single hour! Most of the news agencies described that price action as a computer-driven mistake, however, we suggest that such a brutal bargain hunting was planned. That’s an extremely rare event for the forex market, although it happens from time to time. The same way hedge funds pirates dropped the British Pound in October 2016 when GBP/USD, as well as other sterling pairs, plunged by 600 pips in a blink of an eye. USD/JPY recovered up to 108.56 on Friday, however, further weakness is still on the cards, in our opinion. Ichimoku Cloud trend indicator had almost turned bearish, the first time in six months with the span performing the bearish cross on the weekly chart below. Moreover, all of its three lines crossed the span from upside down, being placed in the downtrend sequence currently. Sell-highs trading strategy is getting more attractive given the recent price action and volatility.
Another rare price action has been noticed for the most popular currency pair in the foreign exchange market. The single European currency charted a gap during New Year hours in New York trading session opening on January 1. Having tested a meaningful resistance level at 15.5000, EUR/USD slipped below 1.14500, opening the New Year 100 pips below the 2018 close price. Such gaps have to be filled by the price even with a delayed performance, so we suggest that a second test of the same resistance is more likely rather than a downtrend acceleration. Several technical signs confirm that assumption with the hourly close price of the week above the 34-hours simple moving average. Higher intraday lows indicate a strong demand for EUR/USD at the bottom part of the recent range near 1.13083/13445. We would go long on the pair right at the market opening on Monday with a tight stop-loss slightly below 1.13800, targeting the range between the green ascending median line which works as magnetic attractiveness for the bulls and the blue horizontal static resistance which represented highest hourly close price in 2019 so far. The take-profit order depends on the bullish momentum next week and it has to be placed in the range of 1.14350/14849. The mid-term target is still 1.15500 for the week ahead and large accounts with a deep balance can afford themselves to hold EUR/USD with a longer scope. Small intraday traders should consider using buy-dips trading strategy as the recent volatility would give them a bunch of chances to go long several times, taking comparatively small profits and waiting for pullbacks before re-entering the market.
WTI Crude Oil: Bullish.
The black gold has found a bottom of the recent downtrend, at least a temporary one. Preliminary technical signs have been noticed on the daily timeframe with the bullish divergence on MACD and RSI in play. It started to work out on December 24-26 after WTI Crude Oil bears charted another lower low in the descending channel. However, the bearish momentum has been exhausted and the bulls stepped in with heavy-volume buying around $42.40 per barrel. Last week’s price action turned MACD histogram into the positive territory. Despite the lack of the same optimistic progress in fast RSI oscillator (it’s still below 50% level), the upside momentum gains its strength. The nearest resistance is placed at $50.08 (the simple moving average with 34-days period) to check out the bullish sustainability of completing the reversal technical pattern. Once that resistance is cleared, the road for the bulls will be opened for further achievements. Next target would appear around $54.54, the top of the market on December 4. We’d recommend a buy-dips trading strategy with shorter timeframes to be monitored for entry signals.