Forex Weekly Forecast & FX Analysis May 18 - 22
S&P 500: Bearish
The S&P 500 index dropped almost 3% last week amid concerns about the global economic crisis due to the coronavirus pandemic. However, the weekly candlestick has a long Downside shadow, which points to a sustainable demand for the stock index on bearish whipsaws. The volatility index jumped and the fear-greed barometer turned on the left side. This price action created a technical concern that the recent upside movement was nothing but a technical retracement from the previous market crash. In case if the upcoming week will bring more bearish achievements, then the index could get back to the downtrend in the long run. The daily chart below confirms the previous suggestion as the index charted 3 lower peaks. The MACD indicator is also descending. The histogram dropped into the red zone, while lines crossed each other and kept declining. The index dropped below a simple moving average with a period of 21 days on Wednesday, however, the short-term SMA13 is still pointing to an upside potential. This is why the price action would have both directions in the upcoming week. Forex Traders should monitor key intraday levels in terms of possible breakouts. Stock indexes could give opportunities for both buyers and sellers in the week ahead, the most important thing is to enter into the market at the appropriate price level, as well as remember about risk management rules.
EUR/USD: Bearish
The most popular currency pair in the foreign exchange market had another test of the lower band of the recent range, tested the wiggly bottom at 1.0775, and bounced back above 1.0800 handles. The demand for EUR/USD came mainly from real money accounts, while speculators were mainly selling the pair. As a result, the single European currency remained almost flat versus the US dollar this past week. The technical sentiment is bearish in the medium term, according to the daily chart setup below. The overall formation looks like a huge descending triangle with several consecutive lower peaks and quite wide support range as the base. The William Alligator indicator is in the bearish eating mode as all of its Lines are placed in the correct order to proceed with the downtrend. On top of that, there was an outside bounce to the Opera line on May 13 when EUR/USD registered weekly top rate at 1.0896. That was a brilliant opportunity to short the pair, implementing a swing trading strategy, which gave a decent profit of more than 100 points (4-digit quotes). The bottom of the support range is placed at 1.0640, while an intermediate support level is coming at 1.0720 dollars per Euro. It is also notable that sensitive oscillators are hovering around the middle level underlining slightly bearish bias. The relative strength index is below 50% and the Chaikin oscillator is in the distribution zone. Therefore FX Traders could see another attempt to test the water in the support range in the upcoming week.
GBP/USD: Bearish
The British pound was hit the hardest in terms of weakness versus the US dollar this past week. GBP/USD was one of the fastest-moving currency pairs among majors as the exchange rate dropped more than -2.40% or 300 pips. On top of that, sterling has tested an essential technical support level at 1. 2100 which never happened in 8 recent weeks. It is also notable that GBP/USD was declining all 5 Days of the past trading week. If things continued moving at the same pace, then Forex Traders could see another test of the post-Brexit bottom. The technical outlook has changed several times in recent weeks, and the past trading week switched the bias back to bearish, according to the daily chart setup below. The Ichimoku Cloud trend indicator performed one more bearish crossover of the leading span. The exchange rate broke through the support level at the bottom of the cloud and accelerated the selling pressure further. The average directional index extended the negative spread between -DI and +DI lines, while the mainline bounced up towards the threshold, underlining the growing momentum. On the other hand, Stochastic RSI is extremely oversold, leading to a short-term correction to the resistance zone at around 1.2200/25. Such a scenario might be lucrative for swing Traders looking for shorting Sterling on rallies. The same approach could be implemented to Pound crosses, especially vs the Japanese yen. On the other hand, GBP/USD could just keep changing, despite oversold conditions on daily technical indicators. So it is recommended to keep short positions for the pair in traders' portfolios.
AUD/USD: Bearish
Australian dollar failed to continue the upside correction versus the US dollar as the AUD/USD currency pair has found a local resistance level at 0.6560 last week. The pair faced three waves of the selling pressure related mainly to fundamental events and overall uncertainty in the market. Further downside momentum is expected. The technical outlook remains negative as the past bullish rally seemed to be too weak to break the rate through the essential resistance levels. The intraday 4-hourly chart below points to the negative sentiment of the Parabolic SAR indicator as its dots jumped above the price last week. Fast oscillators reflected the selling waves but bounced off the oversold threshold, which confirms that the buying potential is not exhausted yet. Therefore, the basic scenario for the week ahead is a sideways consolidation for AUD/USD with trading opportunities for both buyers and sellers on oversold and overbought conditions, respectively.
USD/CAD: Bullish
The Loonie weakened versus the greenback as well. The USD/CAD currency pair failed to reflect the support of the growing oil prices, which was quite unexpected. However, the key agenda this past week was the risk-off sentiment, so FX traders were buying the greenback versus any high-yield currency including the Canadian dollar. The upside pressure was limited at around 1.4125 as the sellers stepped in with heavy-volume supply, and the pair bounced back down to 1.4100. The technical outlook points to the bullish continuation most likely, so traders should keep in mind buying opportunities on bearish whipsaws. The pitchfork pattern on the 4-hourly chart below shows several levels of possible retracements that should be used for the buy-low trading strategy.
