Weekly Forex Forecast - August 19 - 23

Large volatility in stock indices

Despite the lack of any significant development for U.S. stock indices in terms of weekly rate changes, the overall range of the price action was huge as per summer vacation season, which is traditionally quiet. Such a sharp action happens once in a decade, and usually, it points to a tough period ahead. The same volatility in stock indices was noticed before the financial crisis in Autumn 2008, and this year might be similar in terms of long-term investors’ sentiment. For example, Dow Jones Industrial Average had a second-worst trading day in the current year as the benchmark lost almost 800 points in a bloodbath sell-off on August 14. Although the bulls came back to the market and bought equities at lower prices, the overall uptrend is in danger of reversing as the benchmark printed three consecutive red weekly candlesticks, losing -0.69% this past week. S&P 500 and NASDAQ had a less dramatic week, but the overall tendency remained the same. German DAX 30 gapped in the past weekend on the positive side, however, the bullish action was short-lived and the index had lost another -1.2% of its value. French CAC 40 was in the red as well (-0.69%). Japanese Nikkei 225 reached a dangerous psychological mark of 20000 points this past week.

The U.S. dollar recovered part of its losses versus major currencies

DXY gained +1.2% against the basket of six majors, and the structure of the growth was smooth enough to conclude the general market’s demand for the greenback across the board. The only exception was the British Pound, which seemed to have found a local bottom. GBP/USD retraced to 1.2147 from the bottom of 1.2024 in the previous week. The Sterling was also supported by the EUR/GBP cross rate, which reversed and dropped almost 2%. EUR/USD had not only continued the long-term downtrend but even closed the week at the lowest rate since May 2017 (1.1090, -0.98%). Safe-haven Swiss Franc and Japanese yen were moving in the same direction as USD/CHF and USD/JPY had recovered part of the recent losses. USD/CAD continued to climb north but failed to consolidate gains above 1.3300 resistance, while AUD/USD and NZD/USD were hovering around the local bottom of the market. Emerging markets currencies were mixed with the Chinese yuan leading the gains on the back of profit-taking flows by speculative accounts.

The price of gold kept climbing

Although some of the analysts were talking about a possible top of the recent uptrend, the price of gold continued appreciating as the uncertainty about the U.S. recession and trade wars weighed on global investors. The yellow metal added another +1.07% and tested a high of $1535 per ounce for the first time in more than six years. However, the bulls failed to keep the momentum and the gold price slid back to $1513 at the end of the week. Silver had a similar price action, bouncing back down from the peak at $17.50 per ounce. Platinum and Palladium had a multidirectional performance this past week.

EUR/USD weekly forecast: Bearish

Recent performance

The past trading week started on a positive note for the most popular currency pair in the foreign exchange market. EUR/USD climbed north, adding 0.12% to the exchange rate on Monday, and testing the resistance level of 1.1230 for the fourth time this month. However, the sellers stepped in with heavy-volume orders, pushing the pair lower. Asa result, of four-days sell-off the EUR/USD currency pair dropped more than 140 pips and closed the trading week at the lowest rate since May 2017 (1.1090). The lowest rate was noticed on Friday at 1.1066 as the bears were trying the water before testing the crucial technical support of 1.1000. The round-figure support is still rather far from current levels, however, the bearish trade action might eliminate the distance as quickly as in a couple of days, given the recent momentum.

Technical sentiment

The daily outlook (see the chart below) is extremely negative for EUR/USD. The 89-days simple moving average was a tough nut to crack for the bulls as they had six consecutive attempts to breach the resistance curve but failed to do so. As a result, the selling pressure was accelerated, MACD histogram turned negative, while its lines crossed each other, pointing to the bearish continuation. The fast 13-days RSI oscillator had a temporary spike above the 50% threshold but slid back to the bearish territory as well. The only concern for Euro bears is that the daily chart does not have the sequence of lower lows yet, which is needed to proceed with the uptrend. The best-case scenario for them is to close a day below the recent lowest rate of 1.10269, which is just a matter of time. Once that happened, EUR/USD could continue declining on its way to the parity.

Trading strategy

A conservative trading approach suggests a bullish comeback to the resistance range of 1.1155/89 before entering the market with fresh short positions. Those traders who missed the mid-week signal should wait for a bullish rebound. On the other hand, the market would not give such a high level of the exchange rate given the fact that the resistance was just tested with no success. Therefore, any intraday upside swings should be monitored in terms of potential reversal bearish signals. Of course, the sellers should be ready to add more short positions if the rate had a deeper bullish retracement towards the 1.1200 round-figure target. When mentioning the bottom of the market, the recent low of 1.10269 is crucial for the technical analysis, and the bears should overcome that defensive barrier before moving further south. A breakthrough sell-stop postponed order could be placed below that threshold.
Weekly Forex Forecast - August 19 - 23

WTI Crude Oil Weekly Forecast: Bearish

Recent performance

The past week’s test of the resistance range at around $57.50 per barrel was predictable but not obvious. The price action reversed on Tuesday as the bulls failed to lift the black gold price above the technical resistance. As a result, the WTI Crude oil price bounced back down to $54.00 support and remained to hover around that level for the rest of the week with a slightly bullish bias. The current week opened on a positive tone, and traders should seek highs for fresh short positions as the overall trend remains bearish and here is why.

Technical sentiment

First, the sequence of lower highs keeps weighing on the market’s sentiment, and the past week’s bullish whipsaw confirms that tendency. Second, the ADX and DI indicator is still negative as +DI and -DI lines have a bearish surplus and the colour of the range is red, while the mainline is below the threshold, pointing to a weak momentum. The bulls could not reverse the market with such a weak momentum. Third, the Commodity Channel Index is far from the positive territory, hovering around the middle of the range. The only concern is that the Parabolic SAR indicator turned bullish as its dots jumped below the current price. That divergence should be used for the long-term positioning in the market for the upcoming Autumn.

Trading strategy

The technical outlook suggests at least one more attempt to break the descending formation on the upper side. The oil bulls could have tried to lift the price above the resistance range of $57.42/58.89, which should be monitored in terms of possible reversal bearish signals and entry opportunities. Aggressive traders could consider a lower target for shorting the black gold at around $56.62, the highest close price charted on August 13. When it comes to possible targets, the price level of $52.24 per barrel should act as a magnetic quote for the bears. If breached, supports at $51.06 and $50.46 would appear in the market’s focus.
Weekly Forex Forecast - August 19 - 23
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