Forex Weekly Forecast & FX Analysis March 30 - April 3

S&P 500: Bearish

Although the S&P 500 had an impressive rebound, adding more than 10% to its value this past week, the overall mid-term technical sentiment remained bearish. The daily chart below shows a local bottom at 2229.6 points, and this level is the base of the Fibonacci Retracement Levels, counting from the highest daily close rate at 3388.0 points charted on February 19, 2020. The tool points to the crucial resistance level at 2672.1 points, representing 61.8% Fibo retracements. The bulls failed even to test that mark from below during the bullish correction, so the weakness might be on the table in the week ahead. Other technical indicators are mixed. On the one hand, the MACD trend indicator points to a change in the technical sentiment to bullish as the histogram crossed the zero level from below and both lines crossed each other. On the other, daily close rate did not breach the middle line of Williams Alligator, which remained in the bearish eating mode. That could point to a local top of the recent bullish rebound. On top of that, Stochastic RSI oscillator with a period of 13 days is extremely overbought and its lines are about to perform a bearish crossover, which could lead to another wave of the sell-off. One more concern for the bulls is that Friday’s price action was bearish as the S&P 500 benchmark lost almost 4% of its value in one single day. A bearish scenario is more likely for the beginning of the upcoming week. The bears could have an attempt to regain control of the market and push the index towards several technical support levels. The initial psychological value to assess further direction comes at 2500 points (round-figure support). Another strong support is highlighted by the Fibonacci Levels tool at 2477.5 points (78.6% of the recent plunge). If the bears were able to overcome those defensive barriers, then the market players would eye 2400 points as the next target. On the upper side of the trading range, resistance levels come at 2672.1 (61.8% Fibo), 2700.1 (the daily close on March 13), 2704.4 (the upper line of the Williams Alligator) and 2737.9 (the bottom on March 9).

DXY: Bearish

The US dollar index charted a U-turn on the daily timeframe. After surging to multi-year highs, DXY dropped -3.57% on the back of enormous liquidity injected to the financial system ($2.2 trillion) by the US government. Such a sharp reversal of the price action caused another shift of the technical outlook for the greenback versus the volume-weighted basket of six major currencies. First of all, the exponential moving average with a period of 21 days and 13-days SMA crossed performed a bearish crossover, falling back to the bearish bias. On top of that, the shorter moving average acted as the resistance curve during the short-term bullish spike last Friday, signalling that many market players are keen on selling the greenback on highs. Another technical sign is visible on the Average True Range indicator, which reflects enormous volatility of the market. The ATR curve does not have any signal to reverse so far, and that pace of growth could only increase the trading range of the recent bearish swing. Given the recent momentum, the bears would not stop selling DXY before another test of the trading range noted in July - December 2019. The crucial horizontal support comes at 94.48, and if the index breached that level from above, then the sell-off could accelerate. The only profitable trading strategy in these conditions is to keep stop-loss orders tight and use a short-term approach.

GBP/USD: Bearish

Although the British Pound was the strongest currency among majors versus the US dollar this past week and GBP/USD soared almost +7%, the technical outlook is still negative in the long run. The pair recovered more than a half of the recent two-week plunge, adding more than 800 pips (four-digit quotes) to the exchange rate, however, long-term technical resistance levels were not reached yet. The weekly chart setup below shows that Sterling bounced off the descending resistance trendline, falling to the bottom of the long-term bearish channel. The nearest resistance curve is Simple Moving Average with a period of 34 weeks and it comes at 1.2720, so the bulls have to increase the buying pressure and lift the rate by another 250 pips before testing the resistance from below. Even if they had enough volume to pump into the FX market in the week ahead, the short-term momentum might be exhausted, increasing the likelihood of a bearish reversal. Therefore, healthy retracement south is required to proceed with the recovery process. Otherwise, chances for another wave of the sell-off would get higher. The Bollinger Bands %B indicator went off the extremely oversold zone but left a lot of room before retracing to middle range. Such a performance leaves a potential to further recovery, but the general sentiment is still bearish. Another sign of weakness is the Stochastic oscillator, which is hovering around the oversold threshold. The rally of almost +7% did not change the sentiment of the indicator, which confirms that the bearish momentum is still strong. All those factors create an attractive opportunity for aggressive traders to short GBP/USD right on the market open on Monday, targeting at least 200-300 pips south from the current value. On top of that, if the demand for the greenback increased on the back of any piece of negative information regarding the global economic growth, GBP/USD could accelerate the bearish action, dropping back to the bottom of the long-term descending range. Conservative traders should consider waiting for Sterling to test the long-term resistance curve from below before shorting it versus the US dollar and other majors.

AUD/USD: Bullish

The Australian dollar surged +6% versus the US dollar on the back of sustainable demand for commodity currencies this past week. The AUD/USD currency pair charted six daily candlesticks in a row after falling to the lowest rate in decades. On top of that, the bulls managed to overcome the large level of supply at the psychological round-figure level of 0.6000 US dollars per Aussie and even lifted the rate by almost 160 pips above it. The technical sentiment is in favour of a bullish continuation and here is why. The simple moving average with a period of 34 days represents the resistance curve since the bearish breakout on January 16. As the daily chart setup shows below, AUD/USD is heading for a test of the descending line from below and there are only 240 pips left to go for the bulls. Next, the green dashed line is a long-term median of the recent downtrend, acting as a magnetic level for average rates. Since the sellers have gone too far from it, posting the recent lowest rate, the technical rule of coming back to the average mean might support AUD/USD. Parabolic SAR has already turned bullish as its dots jumped below the price after the unprecedented distance between each other during the sell-off. The Average Directional Index maintained the bearish bias but the mainline peaches and -DI and +DI lines have lowered the negative spread. Although the reversal signal is not completed yet, the change in the sentiment is obvious.

USD/JPY: Bearish

Market conditions are extremely volatile for the USD/JPY currency pair as well. The bullish action was capped near the 12-month high at 111.78 this past week as the buyers failed to breach the psychological resistance at 112.00 yen per dollar. On top of that, the bears took that action as the weakness and pumped the FX market with a heavy-volume offer, which hit the rate hard. As a result, USD/JPY lost more than 300 pips of the exchange rate, signalling another shift in the technical outlook. The Ichimoku Cloud trend indicator is mixed. The leading span has the bullish surplus as it reflects the recent rally. However, the rate is far below the cloud itself, while both curves are still lagging. Moreover, the Conversion Line, which should have acted as the support curve, failed to limit the bearish rally. This is why further downwards action is expected for USD/JPY with a possible near-term target at 106.68 (Baseline support curve). On top of that, the support curve coincides with the bottom line of the leading span, and if the bears were able to push the rate below it, another test of the recent bottom might be in play.