Forex Weekly Forecast & FX Analysis March 9 - 13

WTI Crude Oil: Bearish

The price of oil continued the recent downtrend, declining by more than -8% last week. On top of that, the plunge accelerated on Monday with the highest daily drop in almost 30 years. The price of WTI Crude oil fell to the lowest level since January 2016, testing the psychological and technical support slightly above $27.00 per barrel. Tuesday trading started with partial recovery and the black gold bounced back to $34.00 per barrel. However, the medium-term technical analysis suggests further losses in the week ahead.

The weekly chart setup below has several strong signals that the price of oil should keep the recent bearish trend. First, the long-term descending channel is back in play as the short-term bullish correction to $48.64 ended up with no achievements last week, leading a long upper shadow on the candle. On top of that, the psychological round-figure support of $40.00 was absorbed by the bears, causing an acceleration of the sell-off. As a result, Monday’s low rate was registered at $27.40, just 130 pips above the bottom noticed in February 2016.

Second, the Ichimoku Cloud trend indicator performed a strong bearish signal as the leading span charted a bearish crossover, and both Conversion and Base lines dropped far below the cloud. Despite the recent bullish rebound, current rates are far from resistance curves, which are descending rapidly. Third, the Average Directional Index showed the largest spike of the bearish activity as its mainline crossed the threshold from below, signalling strong momentum, while -DI and +DI lines spread to a huge negative surplus. It is extremely important for the bulls to close the current week at least where it started ($41.51) and draw a long downside shadow underlining strong demand. Otherwise, the bears could regain the momentum and continue pushing the price towards multi-year lows at $26.08 and $20.00 in extension.

USD/RUB: Bullish

The Russian Ruble reflected the plunge of oil prices, falling to the lowest level versus the US dollar since the meltdown in February 2016. The USD/RUB currency pair was one of the strongest among emerging markets as the rate jumped above 76.000 on Monday. Although the spike had a short-term nature and a rebound happened thanks to protective measures by the Central Bank, the overall technical sentiment points to further upside risks.

The daily chart setup below points to extremely bullish conditions as the MACD trend indicator reflected the upswing on Monday, increasing the positive surplus. On top of that, Williams Alligator extended the eating bullish mode, and the nearest support jumped to 68.60 on Tuesday with a large likelihood of ascending the depth. Fast and sensitive RSI oscillator went off the extremely overbought value but remained above the threshold, which has to be monitored in terms of the breakout. If the bears were unable to push the oscillator back below the overbought level, then the buying pressure should resume from a short-term perspective. As of Tuesday afternoon, USD/RUB was retracing -4.75% to 71.17 roubles per dollar. However, if the bulls managed to close the day above the psychological level of 72.000, then the uptrend could have another wave of buying.

Conservative traders should stay out of trading as the recent volatility is extremely high and whipsaws are possible on both ends. However, the upside spike was not born in one day as the previous technical analysis suggested such a scenario. The bulls were preparing for such a spike in the price action as the exchange rate was climbing north three weeks before the surge started. Therefore, it would be reasonable to find an attractive price to open more long positions, and the round-figure mark of 70.000 might act as such support. On a long-term basis, the pair has the potential to grow as high as 78/82, the resistance range noticed in January 2016. Forex traders should also keep an eye on the price of oil as the black gold is the main fundamental driver for the Rouble’s plunge recently.

EUR/USD: Bullish

Extremely high volatility was noticed in major currency pairs as well. EUR/USD used to be in a sustainable downtrend for two years with a bearish acceleration since January 2020. The pair charted new lows in February, but the recent performance is extremely bullish as EUR/USD soared more than 700 pips in less than four weeks. The single European currency finished the past trading week at the rate of 1.1283 versus the US dollar, while Monday’s price action sent the pair above 1.1500 for the first time since June 2019. Although the bearish rebound was noticed on Tuesday, the bulls still have chances to reverse the downtrend on a long-term basis.

The daily chart below shows the descending channel of the downtrend with parallel trendlines. After a failed test of the support trendline on February 20, EUR/USD reversed the action and started strengthening rapidly. The bulls had not only breached the mid-term moving average with a period of 89 days but also lifted the exchange rate above the resistance trendline. The importance of that achievement cannot be underestimated for technical analysis. As the past week’s action shows, EUR/USD could not breach the resistance trendline with a very first attempt, having a short-term consolidation below it. However, after the defensive barrier was eliminated and the demand absorbed all of the supply above 1.1200 dollars per Euro, the uptrend accelerated.

The recent bearish retracement was predicted though. The bulls could not proceed with such a sharp rise of the heavy-weight pair in terms of the trading volume and liquidity. So short-term oscillators had to reload the extremely overbought conditions and buyers had to regain the momentum. As a result, a huge wave of postponed sell-orders was triggered at around 1.1500, and EUR.USD slid back to the middle of 1.13 handle. On the other hand, the rebound is deep enough to renew the buying pressure for the bulls, and we could expect another test of the recent peak this week. In case if EUR.USD closed the week in the range of 1.1500/50, then the bullish rally would continue with a similar pace. Otherwise, a sideways consolidation might happen with a directionless trade in the range of 1.1300/1400.

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USD/JPY: Bearish

The Japanese yen reflected the risk-off sentiment and a huge demand for safe-haven assets this past week. What’s more, the USD/JPY currency pair renewed the bottom, testing the low of 101 handles for the first time since November 2016. Such a scenario was not considered as possible just four weeks ago when USD/JPY was rallying above 112 yens per dollar. Thus, an extremely volatile range of 900 pips was noticed in only three weeks of trading. The panic sell-off seemed to settle down on Tuesday morning as USD/JPY retraced to 104.85, recovering most of the Monday’s losses, while global indices posted moderate gains. However, the volatility is expected to remain at the highest level in many years, so whipsaws are possible on both ends in the week ahead.

Before making any predictions regarding future price action, it is necessary to assess the depth of the recent bullish correction. The Fibonacci Retracement levels tool shows that the recovery went above the level of 78.6% counting from the peak at 112.12 (daily close rates matter, but not whipsaws). Therefore, if the day will be closed above 104.74 with a bullish bias, traders should expect further recovery towards the next Fibo retracement level at 106.08 yens per dollar (61.8% of the recent decline). Otherwise, another test of the local bottom would be in play.

Other indicators are still in favour of the bearish scenario. Although Bollinger Bands %B oscillator performed the crossover of the oversold level, Stochastic RSI remained well below the threshold dividing the bullish and bearish activity. Therefore, it is fair to expect another wave of the sell-off for USD/JPY, according to the short-term technical analysis. Another point is that fundamentals could have a more significant impact on the price action, and FOrex traders should monitor the trading activity of global stock indices in general and US benchmarks in particular before opening deals for USD/JPY. If the market turmoil kept impacting the panic in the financial markets, USD/JPY would resume the freefall and no technicals would prevent the pair from charting new multi-year lows.