Technical retracements, corrections and rebounds were noticed for major assets in the financial markets this past week. Although long-term trends aren’t still in danger as reversal patterns weren’t completed yet, some of the financial instruments might be vulnerable to deeper retracements. The overall sentiment was risk-off as investors sold high-yield global equities and bought safe-havens. Major US stock indices plunged, testing deep support curves, never seen for quite a while. However, S&P 500 bounced off weekly lows on Friday, finishing the week with only -0.30% slide, while NASDAQ and Dow Jones Industrial Average suffered deep losses of 3.28% and 2.12% respectively. That divergence left many questions whether shares investors are ready to step-in with current prices next week, or would equities keep plunging. In other regions, the pace of sell-off was even more dramatic. For instance, Japan’s Nikkei 225 lost more than 4% of its value, while European benchmarks were vulnerable to similar slide. Germany’s DAX 30 slid 2.84% after rather a deep weekend gap, and France’s CAC 40 printed the most substantial dip since December last year.
As long as high-yield stock indices were sold-off, capital flows were directed to safe-havens. Gold prices jumped despite technical bearish sentiment, Swiss Franc (USD/CHF -0.46%) and Japanese Yen (USD/JPY -1.03%) were buoyant in the foreign exchange market. Even Euro strengthened despite the liquidation of long speculative positions for risk currencies. Such a shift to safety caused a mixed outlook for the US dollar index, which was hovering around the same levels as in the previous trading week, and closed almost flat (-0.10%). The British Pound and New Zealand dollar were hit the hardest as GBP/USD lost 1.33% of the exchange rate while NZD/USD plunged 0.72%, testing long-term support, and recovering part of the mid-week losses on Thursday and Friday. Canadian and Australian dollars retraced but remained almost flat. Emerging markets currencies had different directions this past week. Most of the commodities were sold-off in the same way as equities; WTI Crude Oil price held the defensive barrier of $61.50 per barrel after testing psychological support of $60.00. A mixed technical bias would keep weighing on price action this upcoming week, and here is why.
S&P 500: Bullish
The benchmark retraced to 89-days exponential moving average (Friday’s low at 2824.9) for the first time since the bullish breakthrough in January this year. However, the test was not, and buyers stepped in as prices were attractive. Another interesting observation is that the S&P 500 gapped through the blue ascending support line last weekend. Traditionally, that happens when the market is thin, and the trading volume is low. Slow MACD indicator is mixed as the histogram is negative, but it started edging up, while MACD lines are pointing to further correction rather than bullish reversal as the gap between them is quite a large. Fast RSI oscillator with a modified period of 21 days (instead of default 14 days) is above the 50% level again, suggesting that the bulls are still strong. As a result, we expect the index to bounce back up towards the blue trendline in the range of 2934.6/45.4 before making any conclusion about further direction as it would be tough for the bears to renew the selling pressure before reloading indicators to overbought levels again. Intraday dips would be attractive to go long with tight targets and stop-loss orders.
Although the US dollar index went off the ascending channel at the beginning of the week, the pace of decline made the technical outlook neutral. The bears weren’t too active, pushing the index lower for just 0.28% in two-day action starting from Thursday. However, the 55-days simple moving average held DXY from further decline. Nevertheless, we expect the index to consolidate with the bearish bias as the second test of the support curve is likely. Bollinger Bands %B indicator confirmes that suggestion as it edged lower, crossing the 50% level which divides the bullish sentiment from bearish. On the long run, the US dollar is attractive to continue the uptrend, which should be used by the bulls to enter the market at slightly more in-depth levels. We’d recommend conservative traders to stay out of the market for a while, catching the greenback at lower prices compared to its major peers. Aggressive intraday traders with high entry frequency might consider shorting the US dollar index with tight take-profit orders and reverse in the middle of the next week, monitoring intraday bullish signals, especially in the scope of BB lower band.
The New Zealand dollar plunged to levels never seen since November last year. NZD/USD printed weekly low at 0.6526 last Wednesday, but the bulls considered that rate as attractive to go long. Despite the bullish bounce, the pair looks heavy, and further selling pressure is possible throughout the upcoming week. The ascending support median line (green on the daily chart below), which used to hold prices two times in 6 months, has been breached. Technical indicators are bearish; the trend’s momentum is sustainable. ADX and DI show that the bears control the market as the main line is well above the threshold, while the red line is far from the green one. Parabolic SAR has dots well above the current price. Therefore, we expect NZD/USD to renew the downtrend after a potential sideways consolidation in a tight range of 0.6589/6612. If the lowest daily close rate (0.6578) were re-written, then we’d see the pair losing the ground.
The cross-rate charted rapid 5-day plunge after the failed test of 1.34000 resistance (the daily close rate at 1.33924 on May 3). GBP/CHF was trying to break through that psychological round-figure level for the second time this year, after staying well below it in 12 months. The bearish rally was impressive as the pair dropped almost 250 pips (the weekly close rate at 1.31528). However, the long-term uptrend is still in play due to several technical signs. First, the Ichimoku trend indicator is still bullish, the span is positive, and both lines are placed above the cloud. Second, the recent bearish action was limited by the upper range of the cloud, and the price did not enter inside the uncertainty zone yen. Third, the ascending blue trendline still works as the support. Therefore, we expect Pound-Swissie to test deeper support before reversing and going North. A range of 1.3078/3122 would be attractive for taking profits and buying the cross-rate on a long-term perspective. Until then, we’d hold shorts.
The technical sentiment is bearish on the daily chart. The bulls weren’t unable to lift USD/ZAR above the descending blue trendline, having to failed attempts. The highest local daily close rate was noticed at 14.5355, keeping the sequence of lower highs compared to the peak seen on March 28. Moreover, the bearish action pushed prices below the middle BB line, which is harmful to the pair. USD/ZAR had covered a distance of almost 400 pips, which is quite impressive. The only concern is that Williams %R fast oscillator is extremely oversold. Therefore, we’d prefer the sell-highs trading strategy with a potential bounce towards 14.2758 where we’d seek intraday entry signals. The mid-term target is the same as before - 13.9136, the lowest daily close rate charted on April 10.