Weekly Market Analysis – Forex, Commodities, Stocks

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Commodities Weekly: Oil Rises, First Time In 8 Days

Central banks’ assurances that they stand ready to act to support local economies hit by the CoVid-19 outbreak turned risk appetite around yesterday, lifting equity, oil and industrial metals markets while hurting gold. Agricultural commodities were mixed, with wheat and sugar under pressure but corn and soybeans rose.

An emergency teleconference meeting of senior G7 economic officials has also been hastily set up for later today, creating expectations of new stimulus measures from the group, which is helping to lift sentiment.

Energy

Crude Oil prices rose for the first time in eight days yesterday, buoyed by central bank assurances of local support for their respective economies impacted by the spread of the coronavirus. Expectations that OPEC and its allies might announce more production cuts at the meeting later this week also helped to lift prices. Ahead of the meeting, Russia’s Putin said he was comfortable with current production levels, but would support any OPEC decision.Speculative investors increased net long positions for a second consecutive week in the week to February 25, according to the latest CFTC data, and they are now at the highest in four weeks.West Texas Intermediate (WTI) posted the biggest weekly decline since at least 2003 last week but has climbed to a five-day high this morning, and is approaching the 50% retracement level of the February 20 to March 10 drop at $48.95.

Natural Gas prices also brought a seven-day losing streak to an end yesterday and look to be building a second day of gains today. Last week saw the biggest decline since late-November, which saw prices pressured to the lowest in four years.Speculative investors were shaken by the drop last week and turned net sellers for the first time in four weeks, according to CFTC data to February 25.

Precious metals

Gold had a rollercoaster journey last week. At one point, prices touched the highest in more than seven years but then reversed in the latter part of the week to close lower for the first time in three weeks. This week has started off better, with gold reversing ahead of the 55-day moving average, which is at 1,561.50 today.

Exchange-traded funds (ETFs) increased net purchases for the year so far to 3.24 million ounces as at last Friday, according to a Bloomberg report. Meanwhile, speculative investors turned net sellers of the precious metal for the first time in four weeks in the week to February 25, according to the latest data snapshot from CFTC.

Silver has also rebounded from seven-month lows amid better risk appetite, but it seems the rebound came too late for some speculative investors. They reduced net long positions in silver during the week to February 25, pulling overall net long positions from near three-year highs.

Silver closed below the 200-day moving average on Friday for the first time since June 17 last year, and that moving average, which is at 17.0354 today, could act as a near-term technical resistance point.

The gold/silver (Mint) ratio surged higher last week on gold’s rise, hitting the highest level on record going back to mid-2006. Last month was the biggest monthly advance since September 2020, capping the second monthly climb in a row. Yesterday’s drop stopped a seven-day rally in its tracks.

Platinum is trading higher this morning, halting an eight-day slide which saw the metal drop 16.7% in the period. The monthly decline was the largest in nine months, and saw platinum hit six-month lows.

Exchange-traded funds increased net platinum holdings last week by 7,000 troy ounces, Bloomberg reported yesterday. Meanwhile, speculative investors reduced net long positions for a fourth consecutive week in the week to February 25, trimming them to the lowest since the week of December 10, according to CFTC data.

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Palladium looks set to halt a two-day losing streak today after prices fell to the lowest in two weeks. Prices snapped a three-week rising streak last week after hitting a new record high.

Speculative investors appear to think that palladium’s bull-run might be coming to an end soon, as they reduced net long positions to the least since August 2020 in the latest reporting week to February 25, CFTC data show.

Base metals

Copper prices jumped the most since December 6 yesterday following the central banks’ moves to reassure markets. That snapped a five-day losing streak as expectations of lower rates from the central banks helped to lift the gloomy cloud above global growth and hence demand for industrial metals.

Agriculturals

Sugar prices fell for a sixth straight day yesterday despite expectations of a hefty sugar supply shortage for the 2020/20 period. The International Sugar Organization has forecast that this season’s global deficit will be 9.4 million tons, the biggest in 11 years, as a result of lower output from Thailand amid heavy droughts in the country, and India. Increased production from Brazil and record output from Russia would not be enough to compensate for the shortfall.

However, speculative investors remain bullish on the commodity having boosted net long positions to the most since December 2020, according to the latest data from CFTC.

South Korea is the fourth-largest importer of US Corn and the spike in CoVid-19 cases in the country last week saw corn prices slump to the lowest since September 18. The central bank-induced rebound helped prices rise the most since January 17 and the commodity is looking to extend the current rally to a third day today.

Speculative investors increased net short positions in the week to February 25 and they are now at the highest since the week of December 10.

Soybeans have risen to an 11-day high this morning after opening above the 200-day moving average at 8.8794 for the first time since February 21. The 55-day moving average is at 9.0374.

Speculative investors remain bearish on the commodity after increasing net short positions to the highest since the week of December 10 in the week to February 25, CFTC data show.

Wheat prices slumped to the lowest since November 22 last week, but still managed to hold above the 200-day moving average, which is at 5.1368 today. Rains are expected in India’s wheat producing regions in the latter part of this week, which could affect harvests.

Long-Term Chart Analysis of Various Financial Markets (Stocks, Forex, Bonds, Commodities)

Recently, we have seen huge volatility and huge moves in the market, which have confused many traders and investors, so in this blog post, I am going to take a step back and look at some weekly charts to give an overview on the market direction for various markets, including stocks, forex, bonds, commodities, etc.

While the first wave of sell-offs were mostly panic-driven, the next wave of decline would likely be driven by fundamentals.

Looking at this strength meter, we can see that the safe haven assets like the USD, Gold, CHF and JPY have performed the best, while commodity-related currencies like the NZD, AUD and CAD have fared poorly.

Here’s a video on how you can use this knowledge in your trading:

Daily Trend Analysis

To make things easier, you can also join our free Telegram channel to get a daily summary of trends and trading opportunities.
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US Dollar Index (DXY)

Despite the Fed cutting rates to zero, launching QE4, extending the repo program to $1.5 trillion, extending USD swaps to multiple central banks across the globe, and a potential $1-2 trillion fiscal package, actions which should technically weaken the USD have instead caused the USD to surge.

The reason for this is that about half of global trade is denominated in USD, and a lot of corporates and governments take up USD debt. When liquidity dries up, you will see people liquidating all other assets to buy USD, hence the tandem plunge in almost all assets, and rise of USD.

Looking at the chart, the USD has been on the rise since 2008, and as more businesses fold up, and liquidity dries up further, this could very possibly push the USD to new highs.

Thus, we can expect most currencies to be in decline relative to the USD, but to varying degrees.

Euro vs. US Dollar (EUR/USD)

The EUR/USD has been in a large uptrend channel for more than 40 years, and now it is hovering at the lower edge of the channel.

If the trendline is unable to hold, we might see prices head down to test the 0.8250 levels.

Currently, Europe seems to be one of the worst-hit regions, and this could cause lasting damage to its economy.

British Pound vs. US Dollar (GBP/USD)

The GBP/USD is also showing great weakness, breaking to new lows. It has been on a downtrend since 2008.

In the medium-term, we can expect a test of the most recent support-turned-resistance level of 1.2084, and if that holds, we will likely see a continued slide of this pair.

Australian Dollar vs. US Dollar (AUD/USD)

The AUD is one of the weakest currencies in recent times, and after breaking below the lows of 2008, we could see the AUD/USD heading to the next support level at 0.4873.

In the medium-term, we are likely to see a test of the most recent support-turned-resistance level of 0.6113, before it continues lower.

NZ Dollar vs. US Dollar (NZD/USD)

The NZD/USD is sightly less bearish than the AUD/USD, but it is also falling fast against the USD, and might be heading to test the next support 0.4905.

Currently, it has found some support at the 0.5596 level, so there might be some medium-term rebound or sideways movement.

US Dollar vs. Canadian Dollar (USD/CAD)

The USD/CAD has a huge pattern forming since 2008 that resembles a hybrid between a cup and handle pattern and a double bottom pattern.

Both are bullish patterns, which suggest that in the long-run this currency pair will continue to stay bullish.

In the medium-term, it has run into strong resistance and may take a while to break past that.

US Dollar vs. Swiss Franc (USD/CHF)

The USD/CHF has been on a long-term decline, and for the past 8 years or so, has been forming a giant rising wedge, which is a bearish price pattern.

The pattern had a breakout this year, but the USD has surged back to the covid crisis to test the breakout point.

I believe that in the long-term, the downtrend will continue, so I will be looking for good shorting opportunities once the USD demand starts to wane.

US Dollar vs. Japanese Yen (USD/JPY)

In 2020, the USD/JPY managed to break above the long-term bearish trend line, but instead of heading up, it went into a sideways movement for the next 5 years.

This pair is tricky to trade because it is rangebound at the moment, and both the bulls and bears are quite balanced.

In the long-run, we will need to see whether it breaks up or down from the consolidation pattern.

US Dollar vs. Singapore Dollar (USD/SGD)

Since the Singapore economy is very export-oriented, and perhaps because the SGD gets lumped in with other Asian currencies, it has seen much much weakening since the start of the crisis.

The USD/SGD has soared strongly to the resistance (prior swing high) of close to 1.46, and looks like it will be breaking that to test the next level at 1.5572.

I have taken many swing trades to ride this strong trend, which has been very profitable for me and my students.

Since I live in Singapore (and use SGD currencies), but the bulk of my investments (and warchest) are in USD, I have actually seen a 8-10% ROI on my whole portfolio just due to the gain from the exchange rates.

S&P 500 Index (SPX)

The S&P 500 has corrected to around 30-35%, in the steepest drop ever on Wall Street, and it has broken past the previous swing low in 2020.

There is no doubt that it will continue to decline, and various analyst estimates have predicted targets ranging from 1800 (which is the 2020 swing low) to 2200.

This suggests a further decline of 10-30% from current price levels.

Since I have bought in near current levels using about 20-30% of my funds, my maximum portfolio drawdown is only 10%, which is pretty much offset by the forex gains (from the appreciating USD).

So for those wondering if they should liquidate their portfolio now, here is some useful advice:

I was expecting a short-medium-term rebound of sorts, before the next wave of selling kicks in.

We started accumulating longs near the low in anticipation of a rebound, but the rebound fizzled out, so we only manged to make a small gain on our positions.

Originally I was expecting a small rebound (correction in price) due to the extreme oversold conditions, but if the bearish sentiment is so strong, it might just drift sideways (correction in time) instead.

If the lows of the 3-bar range are taken out on Monday, then we can expect the downtrend to continue, if not we might see a correction (either in time or in price) play out.

Either way, we are looking for a good opportunity to short, but the precision in timing is important.

US Long-Term Treasury Bonds (TLT)

While bond prices usually spike when interest rates get cut, the TLT had a spike, but it was immediately followed by a plunge, perhaps due to liquidation of bonds for cash.

Technicals-wise, it has broken above a bullish trendline, which could suggest an acceleration of the uptrend in the long-run.

However, with interest rates already at zero, it is hard to see what other catalysts might push it upwards, and we might see short/medium-term cash outflow for liquidity, and long-term outflow into stocks once the market bottoms.

Gold (XAU/USD)

Typically, Gold is supposed to act as a hedge against market declines, by having an inverse-correlation with the stock market.

However, this time we saw a sell-down in Gold as well, probably due to liquidation for cash as well.

On the chart, from 2020 to 2020, we saw Gold carve out a sort of double bottom consolidation hybrid pattern, before breaking out and surging up.

While the price action does not look good in the short/medium-term, I think it still looks bullish in the long-term.

Crude Oil

Due to a confluence of price wars (increase in supply) and a sharp drop in demand, we have seen the price of Crude oil drop sharply to new lows.

The next major support level is at around $10, but we will probably see some intervention before that.

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Weekly Market Brief (Forex and Commodities)

FOREX

AUD/USD – 0.7668 ( -93 or -1.2% )

The Aussie Dollar failed to reach our important 0.7830 level and was consequently sold off aggressively on Thursday and Friday.

NOTE: Wednesday is a public holiday (Anzac Day)

VOLATILITY ALERTS:
Tue 11:30 – CPI (quarterly)

For a move higher we must now see this market close above 0.7729; followed by a retest of 0.7833.Should this occur we will look for this market to retest 0.7903; and if momentum is very strong we cannot rule out a move back up to 0.7988 and 0.8033.

If we cannot close above 0.7729, we will be watching how this market reacts to 0.7662. A break below this level may see a quick move into 0.7620; and if selling pressure is strong a move into 0.7600 and 0.7561 cannot be ruled out.

EUR/USD – 1.2287 ( -43 or -0.35% )

This week is an important week for the EURO.

VOLATILITY ALERTS:
Mon 18:00 – Euro Flash Manufacturing PMI
Mon 18:00 – Euro Flash Services PMI
Thu 21:45 – ECB Interest Rate Announcement
Thu 22:30 – ECB Press Conference

For a sustained move higher we would like to see the EURO hold above 1.2266 followed by a strong break through 1.2360. Should this occur, we will then look for this market to test 1.2420; and if momentum is very strong we could see a push higher into 1.2520.

If the EURO cannot close above 1.2266, we could see a move back down 1.2165 before a pause. This is an important level and any subsequent strong break and close below this level may see the EURO sell-off further into 1.2042 this week.

GBP/USD – 1.4003 ( -235 or -1.65% )

The Pound’s third attempt at a breakout has proved to be unsuccessful and with four consecutive days of selling this market is becoming interesting.

VOLATILITY ALERTS:
Fri 18:30 – Prelim GDP (quarterly)
Sat 00:00 – BoE Gov Carney Speaks

For a move to the upside we would like to see the GBP/USD close above 1.4075. Should this occur we may then see a move into 1.4194. However a strong break and close above 1.4194 could result in a quick move back up into 1.4305; and if momentum is very strong 1.4469 cannot be ruled out.

If we cannot close above 1.4075 we will look for continued selling back down into 1.3875 before a pause. A strong break below this level may see Cable trade further down to the important 1.3743 – 1.3725 area; and if this level is breached WATCH OUT BELOW!

USD/JPY – 107.63 ( +27 or +0.25% )

The $/YEN is again attempting to break to the upside however struggling to break through 107.75.

VOLATILITY ALERTS:
Fri 12:00 – BoJ Interest Rate Announcement

For a continued move to the upside we would now like to see the market hold above 107.36, followed by a strong break and close above 107.75. Should this occur we could then see a quick move into 108.31. If momentum is very strong, we cannot rule out a move to 109.21 by the end of the week.

If however the USD/JPY cannot hold above 107.36, we could see a move back down into 106.30 and subsequently 105.79. A break below this level could then see the USD/JPY trade quickly down to 104.97 before a potential pause.

COMMODITIES

GOLD – 1335 ( -10 or -0.74% )

Once again Gold continues to bounce in and out of our levels, having failed at 1355 and all but closing near our key 1333 level.

For a continued move higher we must now see this market hold above 1333. Should this occur we will look for a retest of 1355, and a close above this level could see further upside into 1365. If momentum remains very strong, we could see a big push into 1374 and 1394.

If Gold cannot hold above 1333, we will look for a strong move back down into 1322. A strong break below this level could see GOLD sell off further into 1303, and if momentum is strong to the downside we may see a sharp move down into 1294.

Risk Warning: Trading leveraged products carries significant risks and is not suitable for all investors. Please ensure that you fully understand the risks involved before entering into any trades. You could lose substantially more than your initial deposit. Any information on this website is general in nature and does not take into account your financial situation, objectives or your needs.

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Latest Analysis

Latest Forex Analysis

AUD/USD: Above 0.6300 on Good Friday holiday with eyes on China CPI

AUD/USD remains above 0.6300, despite stepping back from the monthly high of 0.6363 to currently around 0.6330, at the start of Friday’s Asian session. Markets in Australia/US are closed for Good Friday, Chinese markets are up with March month inflation data on the cards.

USD/JPY: The greenback ticks down, trades above 108.00 figure

USD/JPY consolidates gains above the 108.00 figure. The level to beat for buyers is the 109.50 resistance. USD/JPY bull trend stays intact as the spot trades above the 108.00 handle and the 50/200 SMAs on the four chart.

Why stocks are recovering and where next

The S&P 500 index has recovered around half the losses it suffered due to the coronavirus pandemic. Is bad news priced in? How much credit does the Federal Reserve deserve? Where next for equities?

Gold: Multiple upside barriers before crossing $1,700

Despite probing the multi-year high, marked on Thursday, Gold prices near the key resistances while taking rounds to $1,685 at the start of Friday’s Asian session. The Good Friday holidays in major markets are expected to limit the yellow metal’s moves.

Gold: Multiple upside barriers before crossing $1,700

Despite probing the multi-year high, marked on Thursday, Gold prices near the key resistances while taking rounds to $1,685 at the start of Friday’s Asian session. The Good Friday holidays in major markets are expected to limit the yellow metal’s moves.

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