Forex Weekly Forecast & FX Analysis November 4 - 8

S&P 500: Bullish breakthrough

One of the major U.S. stock indices breached the horizontal resistance line of the bullish triangle continuation pattern on the daily chart below. Although the weekly highest rate was rewritten last week, the daily resistance was breached only thanks to the weekend gap last Monday. As a result, the S&P 500 benchmark continued the long-term uptrend and closed the past week at 3065.2 points, the highest level on record.

What’s interesting, the former static horizontal resistance, which was represented by the highest daily close rate on July 29 (3023.1) acted as the support on Thursday, October 31. That means that the bears had already retraced to the breached defensive barrier but failed to push the index below it. Therefore, it’s worth expecting a bullish continuation in the upcoming week.

The calculation of mid-term targets is simple as the triangle pattern has a base of 240.4 points (yellow range on the chart). Thus, adding that distance to the previous highest close would give us the target - 3263.5 points, which is 6.5% higher than the current index value. The only question is the time when the bulls would get there.

DXY: Bearish slide

The U.S. dollar index lost ground this past week. The bullish action was nothing but failed attempt to reverse the downtrend as the bulls failed to push the index above 89-days simple moving average, which acted as the resistance curve and a perfect entry-level for short-sellers. The greenback’s weakness versus the volume-weighted basket of six major currencies reached the level of -0.72%, while the weekly close rate was the lowest since mid-August. The daily chart setup below shows that DXY does not have any significant support above 95.92, the bottom of the market charted on March 20, 2019. The ascending channel was breached, and the bearish breakout was confirmed this past week, so the sequence of higher lows in June - August this year does not play any role for the technical analysis. The greenback’s decline was smooth across the board with the only exception of the Canadian dollar, which had also weakened on the back of dovish Bank of Canada. Therefore, shorting the greenback would be attractive in the week ahead as well.

USD/CHF: Bearish rebound.

The Swiss Franc gained strength versus the U.S. dollar last week. The USD/CHF reversed 30 pips below the parity, which underlined the bulls’ inability to lift the pair. The daily candlestick with long upper shadow signalled strong resistance level at around the median line which used to act as the support trendline during the uptrend in August - October this year. The bearish reversal was confirmed by MACD trend indicator as its lines did not perform the bullish crossover, while the histogram failed to turn green. Another strong sell-signal came from Stochastic RSI as its lines crossed each other and headed south.

After breaching the 55-days simple moving average, USD/CHF accelerated the downtrend and reached the bottom at 0.9857 dollars per Franc on Friday. There was a classic rebound to the former support curve (now resistance) but the bears took that as another chance to enlarge the volume of net short positions. The sell-highs trading strategy is also applicable here. Mid-term targets are as follows: 0.9810 (lowest close on September 4) and 0.9747 (the bottom on August 23). The year-to-date low is placed at 0.9692, and if the bears were able to rewrite it, the downtrend could accelerate in the long-run. Traders also need to monitor Stochastic RSI as it’s heading towards extremely low values and it might need a reload soon.

GBP/USD: Bullish recovery

The British Pound recovered previous losses versus the greenback last week. However, the pace of growth was far from the rally noticed in the period of October 10 - 18. That recovery was mainly related to the overall weakness of the U.S. dollar rather than Sterling’s strength. The Double-Bolli shart setup on the daily timeframe below suggests that the uptrend is slowing down. Although the middle of the Bollinger Bands was not achieved during the bearish retracement, the upside pressure is limited by the second BB with deviation 1. That could point to a deeper correction towards the support range at around 1.2730/60. Another weak signal is that the overall band between extreme lines of the Bollinger Bands narrowed the surplus, which points to lower volatility and thus momentum. Given the technical factors above, long positions are not attractive until GBP/USD breached the recent top at 1.2979. A breakthrough trading strategy could take place though, with a postponed buy order five-ten pips above the recent peak. Otherwise, the Sterling would be vulnerable to further bearish slide, and short positions would be more profitable in that case.

USD/JPY: Bearish retracement

The Japanese yen also gained strength, despite the risk-on trading mode across global equities. The explanation is in the fundamental space as the FOMC cut interest rates, causing a decline of U.S. 10-year Treasury yields. The Bank of Japan was not as aggressive as come of the yen bears would have expected. So the main driver for USD/JPY was the narrowed interest rate differential between the two countries.

However, the downside action was limited. According to the daily chart setup below, the bearish retracement might come to an end as USD/JPY did not breach the Ichimoku’s Base Line support curve coming at 107.89 currently. The weekly and daily close rate was noticed at 108.14, which leaves a chance for the bulls to renew the uptrend in the week ahead. The resistance is coming together with Ichimoku Conversion Line at 108.59, and that range is likely to remain for quite a while until the breakout showed further trend’s direction. As long as the leading span is rather bullish, the upside scenario is more likely with strong resistance at 109.00 yen per dollar.

AUD/USD: Bullish breakout

The Australian dollar was the strongest currency versus the greenback among majors this past week. Besides the fundamental support from macroeconomic reports and growing price of gold, the technicals were also in favour of the Aussie bulls. Since October 10, Parabolic SAR is below the daily price, which points to a sustainable demand for AUD/USD. The 13-days Relative Strength Index is also bullish with more room to go North before the overbought condition is met. What’s more, the Average Directional Index confirms the strong bullish momentum with the positive surplus between -DI and +DI lines. The ADX mainline is about to cross the threshold, which could lead to the uptrend acceleration in the week ahead.

The nearest target for the bulls is placed at the top of the market noticed on July 18 - 0.7075. Before that, AUD/USD could face heavy-volume offers at the psychological round-figure mark of 0.7000. Nonetheless, given the robust pace of growth, the pair should overcome that defensive barrier.

USD/CAD: Bullish rebound

USD/CAD did not proceed with the downtrend this past week as the Bank of Canada was unexpectedly dovish. Although the regulator left the interest rate unchanged and that decision came in line with expectations by the market players, the dovish rhetoric during the news conference was not so widely anticipated. As a result of volatile action, USD/CAD gained +0.56% in one single day and even tested the round-figure handle of 1.3200, although failed to breach it with the very first attempt. Given the strong supply at around that resistance level, we do not believe that USD/CAD could reverse the downtrend that easily. Friday’s action confirmed our suggestions as the risk appetite is quite high, while the greenback is weak across the board. Technicals are also in favour of mid-term downside pressure. 55-days exponential moving average held the bulls, Williams %R oscillator charted a bounce-by-trend pattern, while BullBear Trend indicator remained negative. Short positions are still attractive.