Forex Weekly Forecast & FX Analysis March 2 - 6
NASDAQ: Bearish
The tech-heavy NASDAQ benchmark had the worst trading week since the financial crisis in 2008, plunging almost -10%. Such a sharp sell-off cannot go unnoticed for the technical sentiment, especially on short-term timeframes. Even the daily chart shifted the bias to extremely bearish, promising further losses in the week ahead. However, the chart setup below has weekly timeframe as the main question now is how far the bears could drop the index on the back of panic sell-off across the global equity market.
The key event for the technical analysis this past week was the breakout of the Ichimoku Base line support curve. Recent corrections in August and May 2019 failed to break the curve through, signaling that the bearish momentum was exhausted. But the retracement started in October 2018 had a more dramatic consequence as the index breached the Ichimoku support curve, continuing the bearish slide. As far as the past trading week closed below the support, it is reasonable to expect further decline towards the top of the Cloud at around 7558.8 points.
On the other hand, two indicators are still lagging in terms of confirming the bearish reversal. Chaikin Oscillator is still in the accumulation (bullish) mode as its value did not cross the zero level yet. Three green arrows underline similar patterns, showing the end of bearish retracements. However, if the indicator dropped below the threshold, entering into the distribution zone, then the bearish action would accelerate in the same way it did in October 2018. Awesome Oscillator went off the extreme level, charting several red bars, but it is still far above zero. This indicator is more lagging than the previous two ones, however, the confirmation is not on the table so far. The wait-and-see position looks the most reasonable for the week ahead. On the one hand, the bearish breakthrough could be fake and short-lived, so the bulls might get back to the market, taking into account attractive prices on the long-term perspective. On the other hand, the pace of the decline is extremely large, so the sell-off could continue. In both cases, the bears would not stop the selling pressure as the short-term momentum is strong.
DXY: Bearish
The US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies dropped -1.32% this past week, changing the technical sentiment on the daily chart (see the screenshot below). The rate crossed all of the three lines of the Williams Alligator indicator, while two lines performed the bearish crossover, promising a deeper bearish retracement if not a complete reversal. The MACD trend indicator delivered strong bearish signals as two lines crossed each other in positive territory and headed south, while the histogram switched the bias to negative. On top of that, a fast and sensitive RSI oscillator went off the overbought zone, crossed the middle line and dropped into negative territory, underlining strong bearish momentum.
All of the technical signs above confirmed the mid-term bearish reversal pattern as the index erased most of the previous gains noted in February. If the bearish action continued in the week ahead, and the index breached the horizontal static support at 97.36 points, then the downtrend could accelerate. Therefore, forex traders should consider shorting the US dollar in the week ahead. Another question is about which currency would gain strength versus the greenback. Continue reading this forecast to find the answer.
USD/CHF: Bearish
The Swiss Franc looks like one of the most attractive currencies among majors to short the greenback against. USD/CHF has always been a leading indicator for the US dollar’s market sentiment, and this past week was not an exception. The reason is that USD/CHF has already completed the reversal pattern, charting several crucial technical signals that promise further weakening of the greenback.
The daily chart below shows that Williams Alligator has turned the eating mode into the bearish direction as all of the lines crossed each other, place in the correct order to proceed with the downtrend. MACD and RSI confirm that reversal by shifting the sentiment to extremely negative. On top of that, the graphical analysis points to a bearish breakout of the horizontal bottom (support line) from the third attempt, which opens the road to the reversal point noted in September 2018 at around 0.9581. In other words, short-sellers of the USD/CHF currency pair can easily hold their positions until that support level. It would be wise to take profits there is higher volatility would be expected in the range where the bulls hide their postponed buy-orders. But if the threshold was breached, then the long-term downtrend would begin with targets much lower than that.
GBP/USD: Bearish
The British Pound does not look like an attractive investment though. GBP/USD is hovering around two handles below the round-figure psychological resistance of 1.3000 dollars per pound, while the momentum is weak and direction is unclear. The past trading week brought another -1.00% of losses for the pair although the greenback was weaker than most of the major currencies. On top of that, Sterling dropped versus other majors. Such cross rates as EUR/GBP and GBP/JPY were the most lucrative pairs to short Sterling as both of them showed enormous volatility.
The technical sentiment for GBP/USD is neutral with a slightly bearish bias. Parabolic SAR is bearish as its dots are above the current rate. The surplus between -DI and +DI lines is negative and growing (look at the red line of the ADX indicator under the price chart below). On the other hand, the ADX main line is far below the threshold, pointing to the weak momentum, which does not allow the bears to accelerate the selling pressure. Besides, the mid-term ascending trendline, which connects two lows in September and October 2019, is still in play as a support as the rate did not breach it by daily close price. So it would be better to avoid the GBP/USD currency pair in terms of durable trading, while cross-rates look more attractive for short-term deals.
GBP/JPY: Extremely bearish
The pair lost more than 600 pips this past week, and the downtrend is far from ending. The Bollinger Bands indicator with a period of 21 days shows a double-breakout pattern as two consecutive days close below the bottom band. That means that the bears have extremely strong momentum to keep pushing the exchange rate lower. The mid-term graphical analysis shows that there is no significant technical support above two horizontal static lines at 130.80 and 127.04. Therefore, if the bulls failed to stop the free fall of GBP/JPY by reversing the action this week, which is unlikely so far, then the pair could lose the ground and accelerate the plunge.
