FTSE 100: Bullish.
The main British stock index reversed the price action two times this past week. After a bullish test of the resistance range above 7400 points on Tuesday, the benchmark declined toward the bottom of the weekly range at 7200 points. Nevertheless, the bulls took the market under control on Friday when the index rallied +1.12%, recovering all of the previous losses. Although the overall direction is unclear and bearish rallies are in place, we still believe that the index is in the growth phase and here is why.
First of all, the Ichimoku trend indicator is still bullish as the leading span is in the green since the bullish crossover 12 weeks ago. Secondly, thanks to the sideways consolidation, the benchmark value went off the cloud, underlining the end of the uncertainty period. Next, the sequence of higher lows is still in play. But the main signal to start buying FTSE 100 was noticed this past week when the rate tested the upper border of the Ichimoku Cloud from above and failed to break it through. Both Conversion and Base lines maintained the right order to proceed with the uptrend.
Additional indicators are mixed with a bullish bias. The recent bullish rally was not reflected on ADX surplus yet, while the mainline of the indicator stayed below the threshold, which points to a weak momentum. However, fast and sensitive Stochastic RSI performed a bullish crossover in oversold territory, which usually forecasts strong bullish rally. The only confirmation we need to conclude the end of the sideways range is the cross of Stochastic RSI of the oversold threshold from below. We expect the benchmark to test the upper band of the green ascending channel at around 7500 points in the week ahead.
The only trading day determining the weekly result was Friday. The daily chart below shows that the U.S. dollar index was quite weak versus six major currencies for most of the past trading week. Friday brought positive news from the fundamental side as PMI indices unpredictably jumped in October. That helped the greenback to gain strength, although the upside continuation is doubtful.
The technical sentiment is mixed, according to the daily chart. The bearish retracement seems to come to an end as the index bounced off the recent low values. However, the sequence of lower highs puts the bullish recovery under a huge question. DXY failed to breach the double-top at around 98.33/41, which might be comprehended as a weakness. Two green channels represent several growth phases seen this year. The index should test the bottom of the nearest channel at least before the technical analysis might make any conclusion regarding the market’s intentions.
On the other hand, technical indicators are bullish. The support curve limiting the bearish slide this past week was the 144-days simple moving average. The fact that DXY bounced off it shows that the bulls are still strong. MACD histogram kept the positive sentiment, both lines are about to cross zero from below. 14-days Relative Strength Index edged below the middle line but reversed and went back up, underlining the bullish momentum.
As far as the greenback is in directionless phase, cross-rates gain attractiveness in terms of volatility and price action. One of the brightest examples is the British Pound versus the New Zealand dollar. Both currencies had a different performance versus the greenback this past week. Sterling dropped, while Kiwi remained flat. That resulted in a bearish slide of the GBP/NZD cross-rate toward crucial technical and psychological support of two NZ dollars per pound. The daily chart below shows that if the support did not hold the bears in the week ahead, the whole upside structure could crash and the pair would erase all of the previous four-month gains.
However, the defensive barrier still stands as there was no daily close below it so far. BullBearTrend indicator is also bullish, even though the positive surplus has been almost erased. Awesome Oscillator is bearish as the histogram is in the red and the sequence of lower highs weighs on the bullish momentum. If GBP/NZD breached the support level of 2.0000, then both indicators would lose the ground, pointing to a possible acceleration of the bearish plunge. There is no clear technical support until the dashed blue median line at around 1.9700/50. The horizontal bottom represented by the lowest daily close on October 9 is even deeper - 1.9400. Four hundred pips is not a distance for such a crazy currency pair as GBP/NZD, so implementing the breakthrough trading strategy with postponed sell-limit orders below 2.0000 is not a bad idea.
WTI Crude Oil: Bullish.
The price of oil charted a long downside shadow on the weekly candlestick but closed it in the green. The daily chart below confirmed the ascending blue channel as close prices failed to breach the support trendline. As a result of midweek bearish action, oil gave a perfect signal to enter the market with fresh longs. Besides the bottom of the channel, several indicators signalled a bullish reversal. 13-days Relative Strength index performed a bounce-by-trend pattern in the same way it did during the last bearish whipsaw on October 31 (see two green arrows in the indicator’s window). Commodity Channel Index tested the oversold threshold, reversed and went into the overbought zone. Parabolic SAR changed the sentiment back to bullish, confirming two previous signals.
It’s hard to expect a sharp breakthrough on the upside as the momentum is quite weak unless something crucial happened on the fundamental side of things. However, WTI Crude is bouncing inside the tight channel, charting higher highs and higher lows, which are nothing but confirmations for the uptrend in play. In such an environment, the breakthrough strategy might not work properly as postponed buy-limit orders could be triggered, the price could go back down after testing the resistance range and keep hovering inside the channel. This is why the buy-lows trading strategy is preferred, while take-profit and stop-loss orders have to be rather tight. Those traders who missed the opportunity to enter the market in the past week should wait for another test of the bottom, setting postponed buy-stop orders at the range of possible reversal $55.50/56.00. The mid-term target is a horizontal static resistance at 61.85, which is the highest daily close price since May 22.
USD/CAD closed the trading week one pip above psychological round-figure resistance of 1.3300. Traditionally, the pair is vulnerable to real-money-account flows and the price of oil. This is why another test of the horizontal resistance of 1.3350 is likely in the week ahead. However, there is a doubt that the rate would break it sustainably. USD/CAD failed to breach it during the bullish climb in August and rally in October. The green ascending trendline represents the support of that movement. It’s been breached in mid-October and became resistance since then. So the bulls might re-test it from below, reverse and go back down again. The level of 1.3350 might be attractive not only to take profits from previous longs but also open fresh shorts, counting on a bearish reversal. Appropriate signals have to come in line with this scenario, so traders should watch technical indicators before entering the market.