The vast majority of assets came back to a normal pace in the financial markets this past week. The volatility dropped, trading volume increased and sudden reversals steepened, calming the price action down compared to the first week of 2019. Some of the first long-term tendencies started to work out, showing a potential direction of the trend this year. Several technical patterns have been confirmed with indicators set for the continuation of the latest developments noticed earlier. It’s too early to talk about breakouts of significant levels yet, however, several charts already fixed the momentum to become more stable, signalling important event to happen this coming week and beyond.
So, US stock indices came back to a gradual growth with volatility index coming off the extremely high levels. S$P 500 added 2.25% to its value as the weekly result, NASDAQ recovered part of its previous losses, climbing for 2.86%, while Dow Jones Industrial Average benchmark rose for 2.22%. Traditional correlations were seen in equities markets as Japanese Nikkei 225 index grew for 2.08%, German DAX30 added +0.68%, British FTSE100 showed positive dynamics for 1.18%. More strength to come this week for global stock indices as many charts signal a strong continuation momentum.
Currency markets were vulnerable to the US dollar’s weakness across the board. US dollar index, measuring a volume-weighted basket of six major currencies, fell -0.52% last week, dropping to the lowest rate in 12 weeks. Two-days rebound helped DXY to pare some of the losses, leaving a comparatively long shadow on the downside of the weekly candlestick, however, the bearish slide is more likely this coming week. EUR/USD was among traditional gainers, having the inverse correlation with DXY, adding another 0.64% to the uptrend power. British Pound and Swiss Franc were among gainers as well. Commodity currencies gained strength versus the greenback, while Japanese Yen remained mostly flat. This week should bring the same tendency in the foreign exchange market and here is why.
Although the single European currency failed to break the crucial technical resistance level at 1.15500 clearly with daily close prices, the bullish momentum keeps lifting EUR/USD in the medium-term perspective. Higher-highs pattern suggests bullish continuation rather than reversal as the pair charted the highest top of the market (1.15698) on Thursday, the first time since October 17, almost three months period. An ascending channel has been formed on the daily chart, which should work as the uptrend guidance in the nearest future. EUR/USD is well above EMA21 for five trading days in a row. The MACD indicator is in the bullish mode with the histogram well above zero and both lines indicating strong growth perspective. The absence of any divergences clears the path for the bulls. Fast RSI oscillators confirmes the slow MACD with a sustainable upside pressure and the current value above 50%. The oscillator is rather far from overbought levels, being reloaded after the pullback in the second half of the previous week. Conservative trading strategy suggests a deeper bounce towards EMA21 support and the range of 1.14270/350 has to be considered for long positions, targeting another test of 1.15500 at least.
British Pound followed major European currencies recently with comparatively strong momentum on the North side. GBP/USD formed several bullish continuation signals on the intraday H4 chart below. The Bollinger Bands indicator with an extended period (34) shows several breakouts of the upper range, indicating a high likelihood of further buying pressure to lift the price. The pair had tested the ascending resistance trendline with several attempts to break it through by high prices. Once the close H4 price will cross the line, an acceleration would take place for the pound. Traders should look for long shadows and tails on intraday candlesticks, the same way as it happened last week, in order to go long on GBP/USD. Stop-loss orders should be tight in this case (40-50 pips normally), while take profit orders should not exceed 100-140 pips distance, as the pairs are still vulnerable to sudden bearish reversal due to the long-term charts still did not complete the bullish reversal pattern.
Japanese Yen tried to pare some of the previous losses last week but failed. The current situation is uncertain from the technical point of view. The daily timeframe has a mixed bias with the current price between two Ichimoku Cloud’s lines: conversion line and baseline. Although the cloud itself turned bearish a long time ago, right after the sudden plunge of the pair, further attempts to bring USD/JPY back above 110.00 psychological resistance might take place in the nearest future. At the same time, Japanese yen might gain more strength versus the greenback is those attempts will fail to break the resistance in a sustainable manner. Ichimoku baseline is placed at 109.283, pointing to the average magnetic price. The market momentum has to be assessed at that level in order to make the trading decision about the further direction. Until then, it’s recommended to stay out of the asset. Selling USD/JPY would be dangerous as a deeper retracement should occur before the downtrend renewal, according to technical analysis rules.
The Aussie seemed to find a long-term bottom. The trick that was made with AUD/USD in the first week of 2019 was nothing but an attempt to get stop-losses and kick out of the market small retail traders. Sometimes such a sudden breakthrough happens (rarely though) before the complete reversal. The key idea of such an action is to find a bottom before charting new highs. That’s exactly what happened with AUD/USD, as the recent development confirmes the suggestion of a false breakthrough charted earlier. The current price has breached SMA89 on the daily timeframe, which was noticed on December 7 previously. Prices are well above EMA21 as well. AUD/USD managed to come back to the same ascending formation that we used to watch in December last year, pointing to the likelihood of things to come back to normal gradual growth rather than being vulnerable to sudden turbulence. If AUD/USD came back to the support level around 0.7150/70, we would gladly go long on the pair as that would be an awesome gift to renew the bullish activity. The buy-and-hold trading strategy might be also applicable, though the depth of trading account is required.
WTI Crude Oil: Bullish.
The black gold added another 7% to its value last week. Our forecast was correct with the only difference in the speed with which the price rises nowadays. Our target of $54.54 per barrel was not achieved and WTI Crude bounced off the weekly high at $53.29. Some of the profit-takings occurred as such an impressive 8-days bullish strick could not be a long-lasting without a healthy correction. Taking into the count the speed of two-weeks 14% rally, we would suggest further buying pressure for oil price. The only thing to wait before going long is a deeper retracement towards $50.00 psychological round-figure support. One of the main rules of the technical analysis tells that a breached resistance becomes support, and we need to monitor the market behaviour around that level before making conclusions about the possible direction. We suggest a scenario when the price bounced further down to the resistance levels and jumps from it on heavy-volume buying support from the bulls. If that happened, we would gladly buy oil for the long-term perspective.