Recent trends were not confirmed nor denied for the vast majority of assets in the financial markets this past week. Volatile price action with several changes in the direction was noticed in every sector including equities, bonds, currencies and commodities. Bulls were fighting with bears aggressively as significant technical levels were tested. The overall outlook remained in favour of the risk appetite, however, some significant changes were seen in technical prospects. Global stock indices were split as S&P 500 and NASDAQ printed modest gains of 0.28% and 0.48% respectively, while Dow Jones Industrial Average slipped 0.20%. All three US major indices had tested daily support levels before reversing in the middle of the trading week though. In contrast, German DAX 30 and Japanese NIKKEI 225 benchmarks kept edging higher (+0.78% and +0.26% accordingly), but French CAC 40 declined 0.42%.
The US dollar index had a similar price action with a mirrored direction. First, the greenback was sliding lower till Wednesday, whipsawed in the middle of the week, bouncing towards weekly gains, and reversed for the second time, finishing the trading cycle with significant losses of -0.58%. Most of the previous week’s gains were erased. The strongest currency among majors was surprisingly the British pound, which gained more than 2% versus the greenback. Euro, Swiss Franc and Japanese Yen printed moderate results but also added in the exchange rate. Commodity currencies had a volatile and wild price action, while the final result was comparatively small. Emerging markets currencies were bouncing off supports and resistances several times throughout the week. In other markets, WTI Crude oil price continued the bearish retracement as the bulls failed to reverse the trend; gold and silver edged lower; US 10-year Treasury yields rose.
The US tech benchmark charted a perfect example of bounce-by-trend technical pattern this past week. The daily chart below shows how three simple technical indicators work together, confirming the trading signal and supporting each other. First, the rate failed to post any significant achievements from April 24 to April 30, hovering around the top of the market, while 13-days RSI was in the overbought territory. The index retraced from all-time highs, reloading the oscillator, but the 21-days exponential moving average limited the correction. Once the test occurred, the bulls stepped in with heavy-volume long positions. RSI and Williams %R confirmed the entry signal, bouncing off the 50% level, staying in the positive territory. As a result, the index gained 1.75%, charting the bullish engulfing and confirming the long-term uptrend for nearest days if not weeks. Those traders who missed such a brilliant opportunity to enter the market should expect the benchmark to dip intraday before opening new positions.
The US dollar index erased almost all of the gains printed in the previous week. The price action was somewhat volatile as the index had changed the trend’s direction several times this past week. First, the predictable retracement was limited by the Ichimoku Base Line, which worked as the support curve. The only thing left on the daily chart from the bearish price action was just a whipsaw (look at the green arrow), and the day closed above the curve. Second, the bulls went into a counter-attack, edging the index higher, and testing the resistance around 2-year highs. Third, the bears were not agreed with the situation and pushed DXY lower again (red arrow). As a result of such wild price action, the US dollar index breached several supports including Ichimoku’s Base Line and the trendline of the ascending channel, which used to hold daily close prices since March 20. The overall technical sentiment points to a deeper retracement before making any conclusions on further trend’s direction. A perfect level for such a test, as well as the nearest target for the bears, is the top of the Ichimoku’s span (96.96). That depth might signal a bearish reversal, however, the Cloud is still bullish on the long run, so the uptrend isn’t in danger yet. We’d stay out of such a roller coaster as things change very fast recently. Aggressive traders might consider shorting the greenback but keep take-profit and stop-loss orders tight.
It would have seemed that the single European currency had found a bottom versus the US dollar last week, and even charted a double-bottom reversal technical pattern. However, things aren’t that simple, and it would be too early to talk about the bullish reversal in the long-term perspective due to the mixed sentiment on indicators. First, the bullish rally on May 1 was short-lived, and the bulls failed to breach the 55-days exponential moving average, which worked as the resistance in the same way as it did in mid-April (red arrow on the chart). The long shadow of that candlestick, as well as the red body, indicates that it was nothing but retracement. Second, MACD lines charted a crossover, which might signal a bullish reversal (green arrow in the indicator’s box). However, the histogram is still negative, and additional confirmation for that signal is required. Third, the ADX and DI indicator is still bearish as the red line is placed above the green line and the main ADX line (black is still under the threshold. The crossover did not happen (red arrow in the indicator’s window), therefore further selling pressure is still on the table.
Although the pair remained almost unchanged weekly, testing both resistance and support levels in one single trading week, the overall technical sentiment is still negative. After a failed test of the horizontal support, USD/MXN bounced back up, testing the resistance descending trendline. The daily close rate was precisely placed at the line, confirming that the triangle pattern is in play. We could see several more attempts to test that formation with volatile price action but a lower range. However, the triangle will be breached sooner or later, and the likelihood of the bearish breakout is getting higher. Once that happened, the USD/MXN currency pair could fall 800-1000 pips in a blink of an eye. Therefore, short positions might be extremely lucrative on Mexican Peso.