The first week of March promises a certain shift of major trends in the financial markets, given the change of traders' sentiment which took place last week. February is traditionally a tough month for most of the high-risk assets including global equities, however, stock indices had an impressive performance. Although the gains were mainly modest last week, global shares were generally climbing on the back of buying pressure. Some of the benchmarks even charted multi-weeks highs, closing the trading week last Friday. So, S&P 500 added 0.16% to its value, recovering all of the mid-week losses on Friday's rally and charting the highest weekly close since October 8. NASDAQ was leading the gains among US equities, rising by 0.86% with similar gains on the weekly charts, while Dow Jones Industrial Average charted a downside candlestick on the weekly chart (-0.22%) after gapping on the previous weekend. In other regions, the Japanese stock index Nikkei 225 soared for 0.83%, German DAX 30 surged for 1.26% and French CAC 40 was growing for 0.95%. British FTSE 100 was the only loser among major European indices (-1.00%).
The foreign exchange market had a mixed performance. The Japanese yen, which is traditionally reflecting the overall risk appetite, was the weakest currency among majors last week, as USD/JPY added 1.13% to the exchange rate, which never happened since October 29. The weekly close was also remarkable as the pair approached an important technical resistance level of 112.00, finishing the trading week just several pips below it. Another interesting action was seen for the British Pound which surged last week. GBP/USD was testing 1.3350 resistance for the first time since July 2018, however, failed to hold the gains and bounced back to 1.3200. As a result, GBP/JPY was the strongest currency pair, gaining 350 pips or 2.26%. It's also worth noticing that all of the three commodity currencies were weakening last week, accelerating the losses on Friday. The Canadian dollar fell sharply (USD/CAD +1.22%) with relation to the oil price (WTI Crude -2.49%), while the Australian and New Zealand dollar lost 0.67% and 0.70%, respectively, on the back of precious metals' plunge as Gold dipped by 2.64% while Silver sank for almost 4.5%. In contrast to that, Palladium price kept climbing North, adding another 3.21% to its value.
Although the most popular currency pair is still hovering around a tight range between 1.1350 and 1.1400, the previous week’s price action was fascinating from the technical point of view. The H4 intraday chart below shows a strong repeating resistance range between 1.1400 and 1.1420. Two long shadows marked with arrows prove the strong supply for EUR/USD and it seems like the bears would not allow the pair to break that resistance range so easy and quick. Another confirmation from the technical indicators came thanks to the bearish divergence on the Relative Strength Index with a short-term period of 12 bars. The oscillator had just touched the overbought level on February 26, then charted a lower high on the next day. As a result of that divergence, EUR/USD slipped back South toward 1.1350. The median dotted ascending blue line represents a graphical view of the real resistance, as the breakout on Tuesday was fake and the pair could not hold gains above 1.1400 round-figure psychological level. On the other hand, the support range is indicated by two moving averages: the exponential MA with a period of 55 bars and the simple MA89. We suggest that the bears would have tried to develop the success and test the support zone, where we’ll be looking for intraday signals in order to go long on EUR/USD. The pair stays well above the EMA55 since February 19, so that test might fail if the close price would be held by the blue curve. Even though EUR/USD stays in a sideways range, it’s closer to the bottom side of the band, which gives us an opportunity to suggest an uptrend continuation in the nearest future with 1.1500 as the first target.
Despite the fact that USD/JPY is extremely overbought on short-term timeframes, we assume that the uptrend will continue and here is why. First, the Ichimoku Cloud trend indicator is extremely bullish on the weekly, daily and H4 charts. Moreover, the width of the span is widening, suggesting even an acceleration of the Northwards movement. In addition, all of the Ichimoku lines are placed in the correct order to continue the bullish rally. The second observation is related to the ascending trendline (green on the chart below), which used to work as the resistance several times recently. It’s been clearly breached by the price last Friday which is a strong bullish signal for USD/JPY. On the other side of the equation, the level of 112.00 is traditionally crucial for both bulls and bears. The technical outlook is usually divided on everything above and below that threshold, and the latest confirmation of that fact was charted on October 15 and 26 when USD/JPY had two failed attempts to break that level (support then, now resistance). So, we would not be surprised to see a bearish bounce from that level, the only question is about the depth of it. The first support curve is the Ichimoku’s baseline (111.20 currently), while the deeper defensive barrier is placed around the top of the span (110.88). That range would be attractive for new long positions on USD/JPY, targeting 113 yen per one US dollar.
Another cross-rate with the Japanese yen is not only reflecting the bullish rally but also has even a more impressive price action. We mean GBP/JPY here, which gained strength last week on the back of two major currency pairs appreciating in one direction: GBP/USD and USD/JPY. Technically speaking, GBP/JPY has only started its Northwards march. Last week’s achievement was charted at the level of 148.57 yen per pound for the first time since November 14. The daily chart below clearly shows that the recent downtrend has been breached at a much more convinceable pace than the last time when the breakout was fake. The Ichimoku Cloud trend indicator confirms that suggestion with the span widening its positive surplus. Although it would be a bit late to jump into the bullish rally at the current levels, aggressive traders might consider that with a tight stop-loss order. However, such a trading strategy should assume monitoring both GBP/USD and USD/JPY for possible deep retracements. Once such a bounce happens on any of the two major pairs, the aggressive GBP/JPY long position has to be closed manually at any price without hesitating. Another potentially lucrative approach is to wait until GBP/JPY bounced back toward the nearest support at 146.69/147.00 and long it from there. But given the speed with which the pair was running North last week, such depth could not have been achieved. Anyway, traders should not even think about shorting GBP/JPY as it would look like standing against the wind.