Retracement and consolidation - these two words can easily describe events which took part in the technical outlook for major financial assets last week. A mixed performance with a 180-degree turn in the middle of the trading week forced us to update the current situation in several key assets, underlining that trends are not formed in a sustainable manner yet and we should expect more volatility in the upcoming weeks. Global stock indices had different price actions with a mixture of technical factors influencing the market conditions. Major US benchmarks were not an exception with S&P 500 sliding -0.16% and charting a long downside shadow on weekly candlestick. NASDAQ charted a similar price action with the weekly result of -0.16% as well. In contrast, Dow Jones Industrial Average gained some strength of +0.12% week-over-week after posting the same reversal pattern. In other countries, the Japanese stock index Nikkei 225 added 0.52% to its value compared to the previous week close price, however, the weekly change was negative as the benchmark had a huge weekend gap. German DAX30 was in green (0.68%), while French CAC40 surged for 1.02% and British FTSE100 sold off, losing a significant part of previous gains (-2.28%).
Such a mixed performance was also reflected in the foreign exchange market. Euro, Japanese Yen and Swiss Franc gained moderate strength versus the greenback with weekly change of 0.35%, 0.20% and 0.22%, respectively. The British Pound soared for 2.53%, reaching important technical levels slightly below 1.3200. Commodity currencies did not have significant changes with the only exception of the New Zealand dollar which added 1.38%. What’s also interesting is that emerging market currencies gained strength together with precious metals, which is quite unusual. For example, USD/ZAR lost 1.61% while GOLD breached the technical resistance of $1300.0 per ounce, climbing for 1.68%. WTI Crude Oil was consolidating around the latest resistances, finishing the week almost flat (-0.56%).
The British pound charted bullish breakthrough, accelerating the uptrend, exactly as we suggested in our previous forecast. That was noticed not only for GBP/USD but also for all of the major Sterling cross-rates including EUR/GBP, GBP/JPY, GBP/AUD, GBP/CHF and GBP/CAD. The Northwards action was divided on two phases, as GBP/USD was consolidating gains after breaching the range of 1.3050/75, gathering bullish power before the rapid run towards 1.3200 on Friday. Recent weekly close price is highest in seven months, since July 2018. Although the weekly timeframe remains bearish on the long-term perspective, the daily outlook finalized the bullish reversal pattern, opening road for more strength, and here is why. First, Ichimoku Cloud trend indicator charted the bullish cross. Second, Ichimoku Conversion line, which works as the nearest support, went out of the span, completing the bullish reversal pattern. Third, the price bounced off the upper range of the cloud which held prices from downside continuation, charting the base for upside run. Fourth, the ascending green resistance trendline has been clearly breached by the price and even worked as support on Thursday. That line might represent future ascending channel of rapid bullish trend. The nearest target for bulls is placed at 1.3267, the highest daily close on September 20. If breached, at least 100 more pips might be gained by GBP/USD.
Sterling cross rates are also attractive for trading nowadays, and one of the most interesting is EUR/GBP as it charted a strong bearish pattern on the daily timeframe. Although the cross-rate did not exit the wide horizontal range, finishing the trading week slightly above the bottom noticed on April 16 last year (0.86338), the difference in the speed of bearish slide could lead to further bearish achievements. The daily chart below contains the Bollinger Bands technical indicator with an enlarged period of 34 days and standard deviation. Both upper and lower lines spread, pointing to larger volatility than usual. EUR/GBP stays below the bottom line since the bearish breakthrough noticed on January 16 with the only retracement on January 18, which failed to get prices back into the channel. Such a performance signals strong bearish momentum with continuation more likely than a deep retracement. Williams Range oscillator confirmes the same technical observation, staying well below -80% level, which points to more weakness in the nearest future. We can suggest the cross-rate to come back to the horizontal static resistance line at 0.86975 which used to work as the support, representing the bottom of the sideways consolidation range in March - June 2018 (marked with yellow colour). That line also held prices from further downside action in November. Technically-scenario suggests a bullish retracement to that level before continuing South, in case if the resistance could hold the bullish bounce. Otherwise, we would see a deeper correction towards the middle line of the Bollinger Bands indicator (brown line). We would consider shorting EUR/GBP there, with comparatively tight stop-loss order of 40-50 pips approximately, and trailing take-profit orders, targeting a potential breakthrough of the range bottom mentioned earlier (0.86338).
The gold price has finally breached strong technical and psychological resistance of $1300.00 per ounce, closing the trading week at $1303.00, the first time in 8 months. The recent uptrend has several technical observations which should clarify the details of further price action. First, a similar action was noticed in October 2018, when prices suddenly breached several resistances. The main convergence is the speed of bullish spike in BB %B technical indicator (below the price on the daily chart). That led to a bullish consolidation when gold price gained 200 pips more despite the divergence in technical indicators before having a deep retracement. The difference is that the current price bounced off the exponential moving average with 21-days period, which worked as the support. So, the latest development is even more bullish. Despite some signs of overbought territory, we suggest more strength for gold with the nearest target of $1321.15, the highest close daily since May 11. The only question is the speed of such a bullish run. Another important resistance comes there - the median ascending dotted blue line, which attracts daily prices like a magnet. The buy-and-hold trading strategy is preferable, even though the current price is rather expensive. Downside retracement is less likely, however, the EMA21 curve should work as the support. Our long-term target remains the same: the range of $1350/60, where we would consider taking profits from our long-term positions.