Forex Weekly Forecast & FX Analysis March 23 - 27

S&P 500: Bearish

The S&P 00 i5ndex lost -14.80% this past week, which was the worst weekly performance since the financial crisis in 2008. The total 5-week decline exceeded -36% counting from the all-time high value of 3381.3 points. According to the technical analysis, the benchmark has officially entered into the bearish market, falling to the level of 2300.6 points, the last time registered in February 2017. In other words, all of the three-year gains were erased in five weeks.

The weekly chart setup below shows that the Ichimoku Cloud trend indicator is in the process of completing the bearish reversal pattern. The leading span has already performed the bearish crossover, the price went through the cloud, while resistance curves entered the span. The only part left to finish the reversal on the weekly timeframe is to cross the lower band of the cloud by Conversion and Baselines, which is going to happen sooner rather than later, especially given the recent momentum.

The Average Directional Index has a large spike of the selling pressure marked by the mainline which jumped above the threshold with a lot more room to go north before a potential reversal. On top of that, the surplus between -DI and +DI lines is extremely negative and still growing. Stochastic RSI oscillator dropped to extremely low values never seen in years. As long as the indicator’s lines stay below the oversold threshold, the selling pressure is about to continue.

The daily chart below is much more bearish in terms of the downtrend momentum. However, daily upswings and short-term corrections represent a perfect opportunity to open new short positions by the trend, using the sell-highs approach. Two attractive entry signals were noted this past week. First, the bullish price action on Tuesday caused a bearish crossover on Stochastic RSI in the middle of the range. Second, Friday’s whipsaw towards the Ichimoku Conversion line resistance curve left nothing but a shadow on the daily candlestick as the price action reversed after showing a bullish rally of +4% intraday. The total trading range reached almost 7% on Friday, which underlines exceptionally high volatility

DXY: Bullish

The US dollar gained strength versus all of the currencies in the foreign exchange market. As a result of the huge demand for the greenback, the dollar index surged +3.30%, closing the weekly candlestick at the highest level in more than 3 years. Despite Friday\'s rebound of -0.96%, DXY remains bullish on medium- and short-term perspective.

The weekly chart setup below points to an extremely bullish technical sentiment. The green ascending trendline used to act as the resistance during the recent uptrend, limiting the upside price action several times since the peak in October 2017. DXY has breached that resistance by the last weekly candlestick. On top of that, the bearish breakout of the 89-weeks simple moving average was short-lived and can be considered as a fake breakthrough. That suggestion is confirmed by the V-shape of the Relative Strength Index, which was nothing but the bounce-by-trend pattern. The MACD histogram is far from its historical peak value, so the growth potential is huge in the long run. There might be a short-term rebound towards the breached resistance now support a range of 101.00/100.80, which has to be considered as an opportunity to increase the volume of long positions for the greenback.

EUR/USD: Bearish

The most popular currency pair has a mirrored pattern compared to the US dollar index. But technical signs are far more clearer in terms of comprehending the recent price action. The weekly chart below shows that there was no breakout of the 89-weeks simple moving average with only shadows above the resistance curve. That means that the bulls had a last attempt to reverse the long-term trend and failed to succeed. As a result, EUR/USD plunged -5.26% or 586 pips, counting weekly close rates. On top of that, the exchange rate sharted the lowest weekly close since April 2017, rewriting the negative record of the recent downtrend.

The technical outlook suggests that the selling pressure is likely to continue in the week ahead as the bears eye the previous bottom at 1.0451 registered in December 2016. Moreover, if the last defensive barrier was breached by the weekly close price, EUR/USD would target the parity, which was never seen in 18 years. The upside spike of the Average True Range indicator points to extremely high volatility of the recent price action. Chikin Oscillator dropped back below the threshold after short-term upside breakout, entering into the distribution zone again. All of the signs mentioned above point to the only direction of the upcoming trading week - south.

GBP/USD: Bearish

The British pound was hit even harder than the Euro. GBP/USD dropped more than -10% in two weeks, renewing the lowest rate seen after Brexit. In other words, current market conditions are even more frightening for the British economy than the uncertainty caused by the historical decision to leave the European Union.

On both the weekly and daily charts below, the Double-Bolli setups show extreme volatility and several bearish breakthrough signals. When it comes to a possible depth of short-term bullish rebounds, GBP/USD could rally up to 300 pips intraday, reverse and continue plunging. So the trading strategy has to come in line with the trading conditions. It is recommended to stay on the short side of the market only. Buying Sterling on the bottom, counting on possible upside swings, is similar to catching a falling knife. Therefore, it is better to wait for corrections to get exhausted and short GBP/USD by the current trend.

The range between the lower band of the Bollinger Bands indicator with the yellow background (deviation 1) and the lower line of the Bollinger Bands with deviation 2 represents the most probable trading zone for the week ahead including possible resistance on the top side of it. As long as the rate stays in that range, the selling pressure is expected to continue, while retracements towards the middle line could cause deeper retracements and consolidations. All of the fast indicators including Awesome Oscillator are extremely oversold, but that would not hold bears from further selling pressure.

AUD/USD: Bearish

The Australian dollar was the second-weakest currency among majors versus the greenback this past week as AUD/USD lost -6.18% of the exchange rate that dropped to a 17-year low. The monthly chart below shows the history of trading since 2002. A huge descending triangle was breached, AUD/USD retested the resistance (former support) from below three months ago and the downtrend accelerated since then. On top of that, the current rate has already breached the recent bottom registered in October 2008 during the financial crisis and headed towards the all-time low at 0.5307 (0.5508 monthly low so far). The 12-month simple moving average is far above the current rate and it is unlikely that the rate would rebound to the resistance curve in the foreseeable future.

A possible test of the recently breached support at 0.6024 is more likely than a one-way downside action as the distance of 200 pips does not seem to be a large range for such a volatile market. The weekly drop of the rate reached almost 400 pips this past week, so we could see a short-term rebound, which should be considered as a chance to jump in and join the party of shorting Aussie. On the other hand, the weekly candlestick has a huge downside shadow of almost 300 pips between the close and low rates, so the bears might have an attempt to fill that gap without any corrections. This is why holding a small-volume short position for AUD/USD in a portfolio is not a bad idea.

USD/CAD: Bullish

The Canadian dollar usually correlates with the price of oil so many traders still remember the bullish rally of USD/CAD during the recent plunge of WTI Crude in 2016. However, the Loonie was not hit so hard as other commodity currencies, although the price of oil plunged below the bottom of February 2016. On top of that, USD/CAD failed to rewrite the historical top of 1.4690, peaking at 1.4668 this past week, and closed the week below the highest weekly close in February 2016 (see the weekly chart setup below).

It is also important to highlight the green dashed median line, which reflects the angle of the long-term uptrend since May 2012. USD/CAD tested the median line currently acting as the resistance but did not breach it from below yet. That means that despite all of the buying pressure, the bulls are not strong enough to overcome the defensive barrier at the very first attempt and we could see a rebound from the resistance. Actually, the range between last Thursday’s high and Friday’s low reached an incredible 500 pips, which confirms the previous suggestion that a healthy retracement is required to proceed with the uptrend. Therefore, traders could see a deeper rebound of USD/CAD south next week, counting on a better price before entering the market.