FTSE 100: Bullish breakout
The main British stock index had several essential technical achievements this past week. The price action led to the bullish breakout of the 89-days simple moving average, which acted as the resistance curve. The previous bearish action was limited by the ascending blue trendline (see the daily chart below), forming a long-term triangle pattern. A breakout of the triangle’s base (horizontal resistance at 7434.6 points, the highest daily close in 5 months) should lead to a bullish acceleration.
Other technical indicators are also bullish. MACD histogram turned positive, both lines had a bullish crossover in the negative territory and headed north. 13-days Relative Strength Index crossed the level of 50% as a hot knife goes through the butter, pointing to a strong bullish momentum. So the rally should continue in the week ahead.
Two scenarios are possible from a technical analysis point of view. First, the bulls could take partial profits on a test of the horizontal resistance mentioned above. In this case, a short-term bearish rebound is likely as the buyers will have to regain the momentum and rebalance the supply/demand ratio. Second, a bullish breakthrough might lead to an acceleration of the rally with a potential comeback to the previously breached resistance later. Therefore, the trading strategy should correspondent the overall approach in the scope of possible time in the market. Large accounts with a long-term perspective should buy and hold the index, while short-term speculators should take profits at around the key level.
DXY: Bearish continuation
The U.S. dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies kept weakening this past week. Despite Friday’s short-term recovery, the index has a negative technical outlook. MACD trend indicator points to a growing bearish momentum as the histogram is in the red, while both lines are headed south, widening the negative surplus. The fast and sensitive RSI oscillator is reaching the oversold territory, and the breakout of the line might lead to further losses of the index. Current rates are far from 89-days simple moving average, which also confirms the bearish sentiment.
The graphical analysis points to a dashed green trendline, which acts as a magnetic median. It connects a local peak charted on August 19 with three lows during the bearish rebound in September - October this year. The line has to act as the level for profit-taking as there are lots of postponed buy-orders placed there. Shorting the index right on the market open is attractive as the recent price action should continue the weak performance of the greenback across the board.
EUR/USD: Bullish rebound
Given the recent weakness of the pair, it’s hard to conclude the bullish reversal yet. In the past week, EUR/USD was stuck at 1.1200, which represents not only the psychological level but also strong technical resistance. The sellers stepped-in with heavy-volume offers even several pips before the level was achieved, so it would be too early to consider that bad times are over for the Single European Currency. EUR/USD was mainly driven by supply factors from the side of the U.S. dollar rather than the demand for the Euro. The daily chart below shows a large upside shadow on the daily candlestick on Friday, and the body of that candle was in the red, which is quite a negative factor for the bulls.
Nevertheless, most of the technical indicators are bullish. Williams Alligator turned the eating mode on as its lines crossed each other and spread the positive surplus, moving north. The Average Directional Index expanded the bullish range, but the mainline remained below the threshold, signalling a weak momentum. Awesome Oscillator’s histogram is positive and growing, which shows that the bulls are quite strong.
Therefore, selling EUR/USD would not be a good idea at this point. Short positions should be squeezed to local resistance levels at around 1.1250/60. Longs look more attractive, but the concern is about the resistance mark of 1.1200 dollars per euro. If the bulls were able to overcome this defensive barrier with the second attempt, then the uptrend should be renewed. Otherwise, another bearish correction could send the exchange rate bouncing in the tight sideways range of 1.1150/75. We’d rather stay away of the pair for now.
GBP/USD: Bullish breakout
In contrast to the Euro, the British Pound has a great background to increase the gains of the recent bullish rally. Although GBP/USD had to retreat from 1.3515 (the weekly high rate), bouncing back down to the previous resistance now support level of 1.3334, the upside risk prevails. The thing is not about technicals but fundamentals currently. Boris Johnson had won an impressive majority in the parliament and promised the voters that Great Britain will leave the European Union as early as in January 2020. This step should finish the 3-year uncertainty in the British economy, investment and corporate sector. Therefore, global investors appreciated that news and kept buying the Sterling across the board this past week. Even Pound’s cross-rates rallied, while GBP/USD was the strongest pairs among majors. The only thing the bulls need to absorb offers in the range between 1.3350 and 1.3500, which should open the road to the long-term target of 1.4200, the highest rate since the Brexit process started in June 2016.
Technically speaking, everything points to a bullish continuation rather than a bearish reversal. Ichimoku Cloud trend indicator is positive, all parameters are in the correct order to proceed with the uptrend. The leading span has a growing surplus in the green, Conversion line limits bearish rebounds. Short-term sensitive oscillators are overbought on the daily chart below, however, that might not force the bulls to stop buying GBP/USD. Williams %R retraced to the overbought threshold after peaking on Thursday but remained above it. During strong trends, overbought levels act as support lines, holding corrections in the same way it happened last week.
Long positions are preferable in the week ahead. Monday started with a positive bias for the pair and the rally seems to continue. The only requirement for the uptrend is to renew the local peak of 1.3515 as the sequence of higher highs has to be in place. Therefore, a large level of volatility could be seen around that level, and small accounts and short-term traders should consider taking profits around there, wait for a rebound and long GBP/USD again. Conservative traders keen on long-term investments should just use the buy-and-hold trading strategy as the uptrend has only started.