Forex Weekly Forecast & FX Analysis October 28 - November 1

NASDAQ: Bullish breakthrough

The tech-heavy stock index overperformed the rest of U.S. major indices this past week. NASDAQ 100 gained almost 2%, closing the past week above the all-time high noted on the week of July 22. Positive earnings reports from several tech giants forced equity investors to keep the bullish rally.

The technical condition is in favour of the bulls. Parabolic SAR is below the current rate, pointing to the positive sentiment. Stochastic RSI performed the bullish crossover after bouncing off the overbought territory. Currently, both lines are headed north. The Average Directional Index has a bullish surplus, however, the only concern is that the mainline remains below the threshold, pointing to a weak momentum. Therefore, it’s hard to expect a sharp rally this upcoming week.

Those trades who still keep long positions for NASDAQ in their portfolios should continue doing so. Shorting the index is too early as there are no signs of a bearish reversal yet. Going long on top of the market would not be a good idea, it would be better to wait for an intraday or daily bounce before opening with-the-trend positions.

DXY: Bullish rebound.

The U.S. dollar index bounced up after a sharp decline in the previous week. The greenback was gaining strength versus the volume-weighted basket of six major currencies in three days out of five. There was an attempt from the bears to regain control of the market last Wednesday, but the bearish action was limited and short-lived.

From a technical point of view, the bearish retracement is not over yet. The index remained below the triple Exponential Moving Averages with 21-, 34, and 55-days period on the daily chart below. Three EMAs are in the process of a bearish crossover as the rate came off the multi-months high for quite a large distance. What’s more, slow MACD trend indicator points to a bearish continuation as the histogram is in the red, while both lines did not perform the bullish cross so far. Fast 13-days Relative Strength Index is in the bearish territory as its value is below 50.

Although everything points to the selling pressure to remain in the week ahead, bullish whipsaws and bounces are possible as the index did not test the breached support (now resistance) range from below. DXY could jump as high as 98.06 or even 98.18 before reversing and going sharply south. Therefore, the bears should wait for a better price to short the greenback. Going long would be too early.

USD/CHF: Bullish

After testing the local low at 0.9841, USD/CHF was growing constantly towards the parity. The weekly close rate of 0.9946 suggests that another test of the round-figure resistance is very likely. In the past week, there was no single daily candle in the red. The overall formation looks like the chart of the dollar index, however, the pace of growth was higher for USD/CHF than for DXY (+1.04% versus +0.81%). Therefore, the Swiss Franc could continue underperforming the rest of the major currencies, especially on the back of rumours about the Swiss National Bank to cut interest rates in the first quarter of 2020.

The technical sentiment is bullish on the daily timeframe. Although the ascending trendline, which used to act as support, was breached on October 17, it could still be in play as a median magnetic line, attracting average daily prices. The nearest target for a long position is the double top at 0.9988, while a breakthrough above the parity would open the road to 1.0083 and 1.0122 in extension. Both levels were tested in May this year, and the market is going to repeat itself this Autumn. Both Commodity Channel Index and Bollinger Bands %R oscillator confirm the bullish momentum, charting a sustainable uptrend above the threshold of 50%. The buy-and-hold trading strategy looks reasonable until reversal signs appeared on the daily chart.

USD/JPY: Bullish

Although the pair had drawn a Doji Candle in the previous week, the overall uptrend is still in play. Daily prices keep growing constantly, even if the pace of growth slowed down. That comparatively weak momentum could be explained by the upcoming meeting and rate decision by the Bank of Japan, as well as the overall geopolitical uncertainty. Other factors are in favour of the USD/JPY currency pair. Equities gain strength, while Treasury yields advance, enlarging the positive surplus in the interest rates between the United States and Japan.

The Ichimoku Cloud is bullish on the daily chart below. The leading span has a robust positive surplus, all lines are in the right order to proceed with the uptrend, current daily rates are above the Conversion Line, which acts as the support curve. All that points to a bullish continuation rather than a bearish reversal. The same buy-and-hold trading strategy is applicable for the pair. The top band of the leading span at 108.15 and the Conversion Line support are among potential support levels in case of a bearish rebound. However, a test of 109.00 resistance looks more likely than a retracement south.

GBP/JPY: Bearish retracement

One of the reasons for the indecisiveness in the USD/JPY currency pair is related to the bearish rebound in yen cross-rates. For instance, GBP/JPY bounced off the local top for almost 250 pips. However, the pair was supported by Ichimoku Conversion line in the same way as USD/JPY. Both daily charts look similar and if the support curves held the further bearish attempts to reverse the price action, the uptrend would be renewed.

The only concern for the bulls is that the distance between Ichimoku Conversion and Base lines is quite large, pointing to somewhat overbought conditions. Two scenarios are possible for the upcoming week. First, GBP/JPY closes a day below the blue support line, suggesting a deeper bearish retracement toward the brown curve. Second, a bullish continuation and a breakthrough back above 140 yens per pound would force the Base Line support to advance higher, narrowing the surplus with the Conversion line. In this case, the uptrend could accelerate. Long downside whipsaws would signal the end of the bearish retracement.

USD/CAD: Bearish slide

Most of the commodity currencies failed to gain strength versus the greenback this past week. The only exception was the Loonie, which was supported by positive news from Canadian political and economic headlines. As a result, USD/CAD kept sliding south, testing a crucial technical support range of 1.3050/3100. What\'s more, the medium-term support trendline connecting two daily lows on October 1, 2018, and July 18, 2019, was finally breached.

The price of oil also gained more than 5.5%, supporting the Canadian dollar this past week. If the horizontal static support at 1.3029 charted on July 18 was not able to stop the bears, USD/CAD could lose the ground and accelerate the slide towards the bottom of 1.2815. The round-figure support handle of 1.3000 is nothing but a psychological obstacle for the bears. Technical indicators, including True Strength and Bull-Bear Trend, are all headed south, confirming the bearish sentiment in the medium-term perspective.