Forex Weekly Forecast & FX Analysis April 6 - 10

S&P 500: Bearish

Stock indices had an attempt to maintain the bullish bias from the previous week but failed. The S&P 500 benchmark tested the resistance level at 2646.5 points (the weekly high charted on Tuesday) and reversed the price action after that. The daily chart below shows that the 21-days simple moving average acted as the resistance curve, limiting the depth of the bullish retracement for the first time since the bearish breakout on February 24. On the other side of the trading range, the index found a local bottom of the Ichimoku Conversion support line, the former resistance curve. However, there are no additional bullish signals pointing to a complete reversal of the downtrend and here is why. The Ichimoku cloud trend indicator remained bearish as the leading kept the negative surplus, while both lines were placed in the correct order to proceed with the downtrend. The rate is trading between the two lines, which suggests a short-term continuation of the bullish retracement with a possible test of the upper band of the range at 2661.4 points. Before that, the bulls have to overcome a strong bearish defensive barrier of the 21-days SMA coming at 2604.7 points. Stochastic RSI oscillator shows overbought conditions but its lines have performed the bullish crossover above the threshold, which might point to a better price for short positions. Going long for the stock index might be dangerous as the bullish action could have a limited range due to the lack of buyers in the market and a possible bearish divergence on Stochastic RSI in case if a lower peak was formed. On the other hand, a sideways consolidation is also on the table for the week ahead as the volatility eased significantly.

DXY: Bullish

The US dollar index reversed the trend direction for the third time in the past five weeks, highlighting the uncertainty of the market. Although the range of price swings is rather wide compared to the previous trading conditions, the recent bullish reversal was rather predictable thanks to the technical analysis. The daily chart below shows two bullish signals. The first sign to start buying the greenback came in when the index failed to breach the bottom of the Ichimoku cloud on March 27 and bounced back above the upper band on March 30. Stochastic RSI confirmed the shift of the technical bias to bullish when its lines crossed each other above the oversold level. After breaching two resistance curves - the upper band of the cloud and Ichimoku Baseline - the US dollar index had a rebound, giving an additional opportunity to those traders who missed the chance to enter the market before that. Since then, DXY charted three daily candlesticks in the green, promising further bullish achievements in the week ahead. As far as the Ichimoku Conversion line and the 21-day simple moving average are headed toward each other, the market might give another opportunity to long the greenback by charting a short-term bearish whipsaw in a range of 100.09/22. It is also important to monitor the Stochastic RSI oscillator in terms of the momentum near the middle line (50.00). If the threshold will be breached clearly, then the bullish sentiment will be confirmed. But if a bounce back down occurred then it would be better to take profits and obtain the wait-and-see position.

USD/CHF: Bullish

After two failed tests of 0.9900 round-figure psychological resistance, USD/CHF had a five-days bearish rally of almost 400 pips. However, currency traders were buying the US dollar versus the Swiss Franc five days in a row last week, lifting the exchange rate to 0.9800 (Friday’s peak). Despite such a dramatic change of the price action, the bullish reversal had a technical background and here is why. First of all, the MACD histogram never dropped to the negative territory. The pace of the bullish pressure lowered but there was no shift to the bearish momentum. Another strong bullish sign was that MACD lines did not perform the bearish crossover either. It would have seemed that a rebound of 400 pips is quite large for such a slow-moving currency pair as USD/CHF but that only confirms the cruel reality we’re living in now. It always happens that the market widens the trading range in times of turmoils, while the volatility jumps to enormous levels. Other technical indicators are also in favour of the bullish scenario. Williams Alligator performed the bullish crossover and set the eating mode as all of its lines are headed north. Williams %R oscillator retraced from the local bottom at -59.40, crossed the middle line from below and headed towards the overbought threshold. The nearest resistance (and the target for the bulls) corresponds to the highest daily close on February 20 (0.9842). But that level might be only a temporary obstacle for the bulls heading to retest the local peak of 0.99 francs per dollar, breach it and lift the rate toward the parity.

GBP/USD: Bearish

Despite the overall weakness of major currencies versus the US dollar, the British pound had rather a limited pace of decline this past week. GBP/USD charted a tight trading range, testing the resistance at 1.2475 and sliding toward 1.2205 (weekly low). As a result, the exchange rate slid only -1.50%, which is four times less than AUD/USD, for instance. This performance might signal that the market players are not willing to continue the sell-off of the Sterling despite the general bearish technical sentiment. The weekly chart below shows that GBP/USD is stuck below a crucial resistance level represented by the bottom band of the Ichimoku cloud and Baseline curve (see the red arrow). The leading span performed the bearish crossover, both lines are below the cloud and the weekly close rate appeared below the Conversion line support. All of that points to the bearish bias with a possible continuation of the downtrend toward the previous local bottom at 1.2023 (weekly close rate on August 5).

The daily timeframe below is less convincing though. The Double-Bolli setup shows that the volatility eased significantly as the range between the lines narrowed, while the daily close rate is continuously staying above the middle threshold, which is supposed to be bullish. Given that, GBP/USD could keep bouncing in a tight trading range before breaking out the consolidation band. The support curve is coming at 1.2226 and if the bears were able to close at least one day below the curve, then the bearish action could accelerate towards the next target of 1.1789. Otherwise, the bulls might have an attempt to retest the weekly resistance mentioned above and lift the rate to the resistance of 1.2663. This is why forex traders should keep their stop-loss orders tight and get ready to close deals manually in case the sentiment changed.

AUD/USD: Bearish

The Aussie was one of the weakest currencies versus the greenback among majors this past week as AUD/USD lost -2.74% of the exchange rate. However, the decline was limited by the psychological round-figure support of 0.6000 (Friday closed only six pips below it), which might lead to sideways consolidation or even another bullish swing in the week ahead. The technical sentiment is mixed but the bias is generally bearish. The main concern for the bulls is that the Average Directional Index still has a negative surplus as the -DI line (red) is placed higher than the +DI line (green). On the other hand, the ADX mainline peaked and headed toward the threshold, which means that the bearish momentum has been exhausted. The Chaikin oscillator points to a similar sign as its line bottomed out, then peaked and dropped back to zero, averaging the recent volatility. Parabolic SAR is still reflecting the bullish retracement as its dots remained below the price despite the five-days bearish rally. Therefore, the bullish retracement might continue in the week ahead with a possible retest of the median line in the range of 0.6134/65.