Forex Weekly Forecast & FX Analysis May 4 - 8

S&P 500: Neutral

The S&P 500 benchmark has found a local top level of the recent recovery this past week. The index was gaining strength in the first half of the week, rallying to 2967.5 points on Wednesday despite the worse-than-expected US GDP report in the first quarter. However, the bullish momentum was exhausted and sellers took the market back under control, so the index reversed and dropped back to where it started the week. As a result, the long upside shadow on the weekly candlestick market shows strong resistance in terms of the recovery pace for the benchmark.

The weekly chart setup below has preliminary signs that the bullish retracement might be coming to an end. The index failed to get out of the Ichimoku Cloud uncertainty zone with the very first attempt. Another strong resistance level is represented by the exponential moving average with a period of 21 weeks, and it limited the bullish price action this past week as well. The leading span turned back to negative after several weeks of narrow range. Conversion and Baselines are placed in the bearish mode, although the index value is still trading above both resistance curves. Fast and sensitive Bollinger Bands %B oscillator is in the bearish channel as its value is still below the 50% level.

But the daily timeframe with the same setup is more optimistic as the S&P 500 index managed to get above the Ichimoku Cloud. The nearest support comes at 2790.3 points (upper band of the leading span), which almost coincides with the 21-days EMA at 2798.2 points. Both pivot points are crucial for the bullish recovery to continue. If the bears were able to push the rate below that range, the downside action might accelerate in the upcoming week. Further support levels come at 2636.0 and 2455.0 points in extension. Therefore, we’d prefer to obtain a wait-and-see position, staying squared for now. Aggressive traders could consider opening short positions with the targets mentioned above.

DXY: Bearish

The US dollar index dropped -1.61% as the greenback weakened versus all of the six major currencies this past week. Although DXY remained in the long-term ascending channel, the short term perspective switched to bearish as several technical breakouts were noticed.

The daily chart below shows that the index might have a bearish continuation in the week ahead. First of all, it breached the bottom of the support range of Ichimoku Cloud, appearing below the span for the first time since the bullish breakthrough on March 30. Second, the index plunged below the 21-days exponential moving average, which turned south. Third, the Bollinger Bands %B oscillator entered into the oversold territory, predicting lower rates to come shortly.

On the other hand, the greenback could try to regain the bullish momentum, or, at least retrace to previous support levels, now resistances in the range of 99.50/74. Such an upside spike could give an opportunity for short-sellers to add volume as fast oscillators will get a chance to reload the oversold conditions. The only thing to be sure about is that the volatility is back to the market amid exceptionally important fundamental events, so Forex traders should keep take-profit and stop-loss orders tight.

EUR/USD: Bullish

The most popular currency pair in the foreign exchange market was suddenly one of the gainers from the Fed and ECB meetings. Although the interest rates remained unchanged in both regions, the European Central Bank was more optimistic in terms of supportive measures and additional liquidity to pump in the financial sector in upcoming months. As a result, EUR/USD breached an important intraday pivot point at 1.0970 and even tested technical resistance in the range of 1.1000/23. However, the technical analysis shows several cautious suggestions in terms of concluding that the long-term downtrend has already reversed.

The daily chart setup below shows several bullish achievements for EUR/USD. The rate closed the past week above both Conversion and Base Lines of the Ichimoku Cloud trend indicator. The upside momentum helped the pair to reach the lower band of the cloud. However, EUR/USD did not enter into the consolidation zone yet, while the leading span maintained the negative surplus. So even if the bullish action continued, the single European currency could struggle to break the upper band of the cloud at 1.1066/75 with the very first attempt, and bearish bounces are possible of that defensive barrier.

The Average Directional Index became bullish after -DI (red) and +DI (green) lines crossed each other. But the ADX mainline is still below the threshold, signaling comparatively weak momentum, the lack of which might not allow the bulls to proceed with the retracement. The Relative Strength Index crossed the middle level from above, reflecting the recent strength of EUR/USD.

Another screenshot below shows that the intraday sentiment is much more bullish. All of the technical indicators turned positive, the only concern is that the RSI turned lower, threatening to cross the overbought level from above, which might lead to a deep bearish correction towards pivot points at 1.0950 and 1.0930 in extension. Given all that, FX traders might witness a volatile trading week with many reversals of the price action.

GBP/USD: Bullish

The British Pound gained strength versus the US dollar this past week as well. GBP/USD tested the water above the 1.2600 figure (weekly high at 1.2644), but failed to hold gains and slipped back to 1.2495. That long upper shadow on the weekly candlestick shows that the market players are not ready to accept the Sterling’s strength to the full extent, implementing the sell-highs trading strategy. On top of that, the lack of the bullish momentum does not allow GBP/USD to lead the FX market as it usually happens. Therefore, we expect a deeper bearish bounce of GBP/USD in the week ahead, although the daily sentiment turned positive.

The Double-Bolli chart setup with a period of 21 days (see below) points to a possible local peak for GBP/USD. The thing is that the pair failed to break through the upper band of the BB indicator and bounced back into the middle range with deviation 1 and yellow background. Meantime, fast and sensitive Stochastic RSI did not reach the overbought level and started narrowing the range between its lines. On the other hand, GBP/USD is still above the crucial technical support level of 1.2460, which leaves chances for the bullish continuation. However, we’d prefer selling the Sterling on bullish whipsaws rather than holding long positions in accordance to swing trading strategy.

USD/CHF: Bearish

The Swiss Franc was mainly reflecting the strength of the Euro rather than having its own reasons to gain versus the greenback. The USD/CHF currency pair dropped -1.19% to five-weeks lows at 0.9614 last Friday. Several technical factors signal a bearish reversal on the daily timeframe and here they are.

USD/CHF breached the technical support at 0.9708 (89-days exponential moving average) and 0.9635 (intraday pivot point), which used to play a supportive role in the recent uptrend. Second, the MACD trend indicator signals a cautiousness as its lines performed the bearish crossover and the histogram dropped into the negative zone. Third, the fast RSI oscillator with a period of 14 days dropped below the 50% level, reflecting the weakness of the pair. FX traders eye a horizontal static support level at 0.9550, a potential breakout of which could lead to further losses towards 0.9500 and 0.9350 in extension.

USD/CAD: Neutral

The Canadian dollar was reflecting the overall risk appetite in the first half of the past trading week, and USD/CAD tested the lowest rate since April 14 at 1.3850. However, the bearish reversal of global equities and other high-yield assets caused a U-turn on the chart of USD/CAD and the pair bounced back to 1.4090 on Friday.

The daily chart setup below shows that USD/CAD is in the sideways consolidation range, while the past trading week closed exactly in the middle. Williams Alligator had several crossovers of its lines, signaling a period of uncertainty and directionless trade ahead. Friday’s close rate, however, was still below the Alligator’s resistance curve. Fast and sensitive Williams %R oscillator reflected the price action, bouncing from overbought and oversold levels. The line is edging higher, promising possible bullish whipsaws towards the upper band of the range at 1.4212. On the other hand, Parabolic SAR dots are still placed above the rate, which reflects the bearish momentum, thus upside potential might be limited.