Forex Weekly Forecast & FX Analysis January 6 - 10

FTSE 100: Bullish

The British stock index was vulnerable to profit-taking flows and technical retracement this past week. The benchmark failed to continue the recent rally, dropping -0.54% on a weekly basis. However, the daily price action has several optimistic signs in terms of a potential renewal of the uptrend. First, the three-days decline at the beginning of the past trading week ended with a long downside whipsaw on Wednesday’s candlestick, which reflected strong demand from buyers, who entered the market on bearish rebounds. Second, Thursday’s candle was in the green with quite a sustainable daily gain of +0.83%. Third, Friday’s decline was related more to the overall risk-off sentiment caused by military action in the Middle East rather than concerns related to the British corporate sector.

Technically speaking, the British FTSE 100 index is still bullish on the daily chart below. The rate remained above the upper line of the Williams Alligator indicator, which stayed in the eating mode, pointing to further gains. The MACD trend indicator remained bullish as its lines did not perform the bearish crossover, while the histogram kept the green colour. Although the Relative Strength Index went off the overbought zone, it did not perform the sequence of lower lows yet, which is optimistic in terms of the uptrend renewal.

Two scenarios are possible for the upcoming week. The first one suggests that the bears would try to push the index lower, extending the depth of the retracement. Williams Alligator has the middle line coming at 7510 points, and this curve should act as the support level to hold the sellers from further development. The previous bottom at 7521 points should be monitored by traders as a potential rebound limit as well. In this case, the buy-dips trading strategy would be profitable. The other scenario suggests a bullish continuation right on the market open on Monday. The things are that the bearish correction already bottomed out in the past week, and the bulls would not let the index to chart lower lows in the short-term perspective. Thus, the buy-and-hold strategy would be attractive.

Gold: Bullish

The price of gold rallied for the second straight week, accelerating the uptrend. Several technical achievements were registered as the yellow metal breached multiple resistance levels. First, gold printed the highest weekly close rate of $1552.11 in almost seven years. Second, the daily close rate charted the sequence of higher highs counting from the previous peak on September 4. Even though the difference of 20 pips might seem insignificant, the technical meaning of the development cannot be underestimated.

From a technical point of view, the uptrend is strong and sustainable. The Ichimoku Cloud trend indicator performed the bullish crossover and the positive surplus is rapidly growing on the daily chart below. What’s more, both Conversion and Baselines went off the uncertainty zone, following the bullish rally. The BullBearTrend indicator confirms the previous sign, reflecting the strong demand for gold since the breakout on December 19. The absence of upside shadows on daily candlestick shows that the continuation is more likely than a retracement at this point.

Those traders who have longs on gold in their portfolios should keep holding them until the first signs of potential reversal like sharp whipsaws or volatile rebounds. Taking profits would not be a mistake as well. However, those traders who missed the opportunity to join the rally, should not rush to open fresh longs as the price has got too expensive at this point. The buy-dips trading strategy would be reasonable as a technical correction could start as early as in the upcoming week. In this case, traders should keep an eye on Ichimoku support curves and go long on a failed test of one of them.

EUR/USD: Neutral

The most heavy-weight currency pair in the FX market - EUR/USD - topped out at 1.1239 this past week, and this might signal the end of the bullish upswing. Although the sequence of higher highs is still in play, the depth of the bearish rebound could be extended in the week ahead as the sellers stepped in with the large volume of supply. There was also a log downside shadow on the daily candle on Friday, which reflected the demand from the bulls. These two opposite factors could lead to a narrow sideways consolidation with directionless trade, so it is recommended to stay out of the pair until the technical picture will become clearer.

Indicators are mixed on the daily chart setup below. On the one hand, EUR/USD is still above the simple moving average with a period of 55 days. The blue curve was tested from above two times by the bears recently, but both attempts failed to push the exchange rate below the mid-term support curve, which is bullish. The Average Directional Index is still bullish, but the positive surplus is narrowing rapidly, while the mainline reflects quite a weak momentum. Fast and sensitive Williams %R oscillator went off the overbought zone, reaching the middle line, and if the downside action continued, the indicator could switch the short-term sentiment to bearish. This is why further trend’s direction is uncertain, both bullish and bearish scenarios are possible, so it’s better staying squared on the pair.

NZD/JPY: Bearish

The New Zealand dollar was one of the strongest currencies among majors throughout December 2019. However, this past week brought a sharp sell-off in all Kiwi pairs, and the NZD/JPY cross-rate was the weakest among them as NZD/USD and USD/JPY were plunging simultaneously. While the Kiwi’s decline was more about the technical retracement, which had to come in sooner or later, the plunge of the USD/JPY currency pair was impressive in terms of pips lost for the exchange rate. Therefore, NZD/JPY dropped -1.79% (-130 pips), charting a bearish engulfing pattern on the weekly timeframe, which could lead to the uptrend’s reversal.

According to the daily chart below, the pair’s weakness was limited by a crucial support curve - Ichimoku’s baseline support. If the bears were able to close at least one day below it, then the bearish retracement would extend losses for the pair toward the upper band of the cloud at 70.15/50 yen per NZ dollar. On the other hand, the overall pattern is still bullish as the leading span has quite a large positive surplus, and if the bulls were able to hold the defensive barrier, then the pair could return to the growth phase in the medium-term perspective.

The breakthrough trading strategy with postponed sell-orders below 71.78 might bring fast profits as the selling pressure is consistent. In this case, traders should hide their if-done stop-loss orders above the current rate of 72.04/10 as higher volatility is expected on a possible test of the support level. Going long on NZD/JPY is a bit dangerous, given the recent sharp sell-off, and the buy-dips trading strategy could be implemented later when the price action would show bullish reversal signs. We’d wait and see so far.
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