Weekly Review:

The headline event in early trading last week was US inflation. According to the Bureau of Labour Statistics (BLS), annual inflation cooled to 6.4%. Although marking a seventh consecutive deceleration since the peak at 9.1% in June 2022, the release was marginally above the 6.2% consensus; the monthly measure, nonetheless, matched expectations at 0.5%. Thursday also welcomed the latest US Producer Price Index (PPI) data. Producer prices increased 6.0% in the 12 months to January (vs +5.6% expected, +6.5% in December) and rebounded 0.7% on the month (vs +0.2% expected, -0.2% in December). Recent data—coupled with US Fed Members airing support for a larger hike at the Fed meeting on 22 March—elevated concerns that the Fed may continue to maintain an aggressive policy tightening schedule. According to the CME’s FedWatch Tool, Fed funds futures show markets are pricing in about an 80% chance of another 25 basis-point hike over a 20% probability of a 50 basis-point push.

Wednesday welcomed inflation data out of the UK. As per the Office for National Statistics (ONS), annual inflation cooled for a third consecutive month. In the 12 months to January, inflation eased to 10.1% following December’s 10.5% reading, the lowest rate since September last year and below the market consensus of 10.3%. Short-term interest rate derivatives, as of writing, are pricing in a 71% chance of a 25 basis-point hike at the Bank of England’s (BoE) next meeting on 23 March. Finally, Thursday saw Aussie employment fall for a second consecutive month. The Australian Bureau of Statistics showed net employment fell by 11,500 in January—forecasts had been for a rise of 20,000. The unemployment rate ticked higher to 3.7%, despite analysts estimating it to remain unchanged at 3.5%.

Regarding markets at the close, US equity indexes ended mixed, with US Treasury yields finishing higher across the curve, while in the commodities space, precious metals and oil ended the week on the ropes. Procyclical currencies took a hit and the US Dollar Index climbed for a third consecutive week.

The crypto market also warrants attention and is firmly back on the radar. Year to date, BTC/USD, ETH/USD, LTC/USD and XRP/USD are up by 48.0%, 41.0%, 42.0% and 16.0%, respectively. BTC/USD, technically, exhibits scope to navigate higher terrain this week, targeting $26,774 resistance on the weekly timeframe (see the technical view below).

Developed Markets This Week:

First and foremost, Monday will likely deliver subdued trading conditions as US banks close their doors in observance of Presidents’ Day as well as a thin economic calendar.

Tuesday is a busy one for markets, however, kicking off with minutes from the Reserve Bank of Australia (RBA), a release providing a comprehensive review of the RBA’s rate decision on 7 February; the central bank raised rates for the ninth consecutive meeting, raising the Cash Rate target to 3.35%. During the early hours of European trading (and US hours for the US release), we will see the latest Eurozone, UK and US S&P Global (flash) manufacturing and services PMIs for February at 9:00 am, 9:30 am and 2:45 pm GMT, respectively. All the aforementioned PMIs are poised to release higher-than-previous numbers, though they remain largely in contractionary territory (< 50.0). This is then followed by inflation data out of Canada ahead of the US cash open; the year-over-year measure is expected to slow to 6.1% in January after December’s 6.3% reading.

Wednesday begins with the Reserve Bank of New Zealand’s (RBNZ) rate decision; markets are currently pricing in a 90% probability that the central bank will hike rates by 50 basis points, bringing the Official Cash Rate target to 4.75%. We then round the day off with the Federal Open Market Committee (FOMC) minutes. Much like the RBA’s minutes, this release provides market participants with a detailed review of the latest rate decision and may provide investors with clues on future policy moves. Many desks claim that the Fed is unlikely to raise by 50 basis points again during this cycle; it will likely continue in 25 basis-point increments going forward.

Finally, the tail end of the week focusses on US growth data and the Fed’s preferred gauge of inflation: the US personal consumption expenditures (PCE) price index.

Technical View for the Week Ahead

Charts: TradingView

US Dollar Index

As measured by the US Dollar Index, the US dollar settled higher for a third week and added 0.3%.

The monthly chart shows February penetrated the lower border of a decision point at 101.30-103.91—likely clipping several longer-term stops—and has since reclaimed positive ground. On track to snap a four-month bearish phase, the daily chart reinforced the bullish landscape last week, venturing north of the 50-day simple moving average at 103.33 together with channel resistance, extended from the high of 107.99. However, despite the buck eking out another weekly gain and clearing the aforementioned resistances, Friday pencilled in a half-hearted daily shooting star candlestick pattern, a bearish signal formed within a whisker of daily Quasimodo resistance at 104.86. As a result, this could still pull things lower this week to at least retest the breached channel resistance (and 50-day simple moving average).

Technically, thanks to last week’s higher high on the daily chart, the price is now clearly in the early stages of transitioning to an uptrend. This, of course, conflicts with the recent Death Cross, fashioned through the 50-day simple moving average crossing under the 200-day simple moving average (106.45). Currently supporting the Death Cross is the Relative Strength Index (RSI) on the daily chart, addressing indicator resistance between 60.00 and 50.00. Consequently, as an area that tends to offer a ceiling in downtrends, divergence or a bearish failure swing could still emerge from this zone and prompt USD softness. Having seen the daily timeframe showing signs of rotating north, the monthly scale (despite a one-sided USD decline in Q4 of 2022 from a channel resistance, extended from the high 103.82) also shows the trend has remained to the upside since early 2008.

Direction:

Given that the daily timeframe is on the verge of establishing an uptrend (a little early to be clear for my liking), should price action maintain its position above the daily descending channel resistance-turned-potential support and the 50-day simple moving average (or retest the aforementioned levels and form support), this may tempt further buying to approach at least daily Quasimodo resistance at 104.86 this week. Evidently, any upside would be in alignment with the monthly timeframe’s uptrend.

EUR/USD

Versus the US dollar, the euro concluded a touch higher on the week despite ranging nearly 200 pips. This follows two consecutive losing weeks, dropping from weekly Quasimodo support-turned-resistance at $1.0888. Coupled with the almost one-sided pullback off the late September lows (2022) at $0.9536, in a market trending south since 2021, this might be viewed as a sell-on-rally opportunity. Hence, should $1.0888 continue to deliver a technical ceiling over the coming weeks/months, the tone in this market will likely remain bearish until price touches gloves with weekly support from $1.0298. Failure to hold $1.0888 unearths fresh weekly resistance as far north as $1.1174.

Meanwhile, on the daily timeframe, following price elbowing under trendline support, taken from the low $0.9742, and the Relative Strength Index (RSI) continuing to explore space under the 50.00 centreline (negative momentum), last week witnessed the currency pair engulf the 50-day simple moving average at $1.0724. Albeit offering bearish confluence, which somewhat corroborates the picture I see on the weekly scale, Friday finishing in the shape of a daily bullish hammer candlestick pattern ahead of support at $1.0602 may alarm sellers this week. Regarding trend direction, following the series of higher highs and higher lows, an uptrend has been active since rebounding from daily support at $0.9573 (and weekly support at $0.9606). Therefore, although bears appear poised to take control according to chart studies, I feel the trend direction remains north on the daily for now. Nevertheless, a daily price close forming under $1.0602 this week would help swing the technical pendulum in favour of a bearish trend emerging on the daily timeframe.

Against the backdrop of the bigger picture, following a to-the-pip rebound from a decision point at $1.0597-1.0613 on Friday (which houses $1.06), shorter-term action shows H1 price run through resistance at $1.0660 (now marked support) and also trendline resistance, taken from the high $1.0804. Overhead, $1.07 is in the headlights early this week, closely shadowed by H1 Quasimodo resistance at $1.0715. Should we voyage beyond the aforesaid levels, H1 Fibonacci resistance calls for attention between $1.0777 and $1.0764.

Direction:

The area between Quasimodo resistance on the H1 timeframe at $1.0715 and $1.07 could interest short-term bears in early trading this week in light of the weekly and daily timeframe’s technical structure. However, breaking north of this region, which may stimulate a bullish breakout play, unmasks the nearby 50-day simple moving average at $1.0724 on the daily chart, effectively capping breakout buyers and laying the ground work for a potential Bull Trap. This could equally attract short-term bears into this market.

S&P 500

Upside momentum stalled once again last week, shedding 0.3%. Month to date, we are now unchanged on the S&P 500 and trading considerably off best levels. So, where does this leave investors for the final full week of February?

The monthly timeframe, aside from the obvious upper shadow evident through the current candle, remains unchanged from the previous Weekly Market Insight (italics):

The monthly chart has remained in a dominant uptrend since early 2009. We had two notable corrections in that time, one in early 2020 (COVID), dropping 35%, and one in play since early 2022 (27% from 4,818, as of writing), which was accompanied by negative divergence out of the Relative Strength Index (RSI). However, recent months show the indicator attempting to find grip north of its 50.00 centreline, indicating positive momentum.

For this index to continue pursuing higher ground on the monthly timeframe, buyers must contend with resistance on the weekly timeframe: a Quasimodo formation at 4,177. The recent reaction from the aforementioned level could have price navigate back to the breached weekly trendline resistance, taken from the high at 4,818, or at the more extreme, drop in on weekly support from 3,589. Knowing the overall trend faces northbound (monthly chart), overthrowing current weekly resistance unearths a possible run to the 4,195 2 February high. Buyers may also get a boost from the weekly chart’s RSI venturing above the upper boundary of an ascending triangle between 53.72 and 30.47. As you can see, the indicator is poised to retest the breached limit this week, which could present support.

Support on the daily timeframe is limited until reaching the 50-day and 200-day simple moving averages at 3,977 and 3,943, respectively. A neighbouring 38.2% Fibonacci retracement ratio is also present at 3,927. Should buyers realise support before the aforementioned levels, attention shifts to the 4,195 2 February high mentioned above on the weekly scale. In terms of the RSI on the daily, the indicator is approaching the 50.00 centreline and indicator trendline support (taken from the low 27.21) following a near-test of overbought territory.

To be clear, alongside the monthly chart, the weekly and daily timeframes are in early uptrends thanks to the 4,195 high. Additionally, the latter timeframe is supported by a Golden Cross: the 50-day simple moving average crossing above the 200-day simple moving average.

The H1 timeframe had buyers and sellers end the week battling for position around the underside of a falling window (a breakaway gap) at 4,089-4,078, sheltered south of a resistance from 4,094. To the downside, early trading draws attention to Quasimodo support from 4,044 and the neighbouring channel support drawn from the low of 4,093.

Direction:

The absence of support on the daily chart until 3,927ish, coupled with weekly resistance making a show at 4,177, prompts a short-term bearish scenario from the H1 timeframe’s falling window at 4,089-4,078 (and neighbouring resistance level at 4,094). Assuming the above comes to fruition, H1 Quasimodo support at 4,044 is likely to demand consideration, with a break bringing to light the 50-day simple moving average on the daily timeframe at 3,977 as the next downside objective.

Monthly, Weekly and Daily Charts:

H1 Chart:

XAU/USD (Gold)

For those who read last week’s Weekly Market Insight, I highlighted the possibility of further weakness for the yellow metal. Declining more than 1.0% last week, the price of spot gold (in dollar terms) bumped heads with daily support coming in from $1,828, as expected.

Interestingly, according to the weekly timeframe, additional underperformance is perhaps in the offing until support at $1,807. Therefore, Friday’s hammer candlestick pattern forming at the daily support at $1,828 (which happens to be joined by a 38.2% Fibonacci retracement ratio) might fail to stimulate any meaningful upside this week; the 50-day simple moving average at $1,861 is likely to serve as dynamic resistance if tested. Aside from the weekly support level, clearing $1,828 support reopens the risk of a return to the 200-day simple moving average at $1,776, followed by the daily chart’s pattern profit objective (derived from a daily bearish flag between $1,881 and $1,862) from $1,768.

Price crossing below the 50-day simple moving average on the daily timeframe in mid-February represents a bearish trend signal: the current price trades lower than the 50-day average which, in this case, is also confirmed by the Relative Strength Index (RSI) exploring territory under the 50.00 centreline (negative momentum) and appears bound for oversold space this week (30.00). However, to help confirm a downtrend on the daily timeframe, I would like to see daily support taken out at $1,828, and a decisive lower high unfold followed by a subsequent lower low (traditional bearish trend structure). This, of course, places a question mark on the Golden Cross, which refers to a bullish trend signal through the 50-day simple moving average crossing above the 200-day simple moving average.

Consequently, this week’s test for this market is the daily support at $1,828. A breach places light on a test of weekly support mentioned above at $1,807, while continued rejection of the support signals that buyers still have some gas left in the tank and February’s correction from the $1,959 peak could simply be that: a correction within an uptrend.

Price action on the H1 timeframe wrapped up the week testing the spirit of resistance at $1,843, following an earlier rebound from the 1.272% Fibonacci projection at $1,824 (note that some traders will likely acknowledge this Fibonacci ratio as an alternate AB=CD bullish pattern) heading into the US trading session. Overthrowing $1,843 this week will place bulls in charge, leaning towards an approach to a resistance area between $1,859 and $1,857 (made up of a 78.6% Fibonacci retracement ratio, a Quasimodo resistance and a traditional horizontal resistance), which happens to converge closely with the 50-day simple moving average at $1,861.

Direction:

We have the weekly chart informing market participants that there is scope for further selling this week until $1,807. But for this level to welcome price, daily support at $1,828 must be engulfed. Given this information, H1 resistance at $1,843 will be a key watch in this market in early trading. Clearing this level to the upside opens the door for breakout buying towards H1 resistance between $1,859 and $1,857 and the 50-day simple moving average. At the same time, a $1,843 rejection supports the weekly timeframe sponsoring a move to $1,807 and places a question mark on current daily support.

BTC/USD

Up 13.0% on the week, BTC/USD erased recent weekly losses and refreshed highs, visiting levels not seen since June 2022. While I feel it is still too early to confidently assess trend direction on the weekly timeframe, buyers have evidently exhibited strength since bottoming in late November 2022.

I noted the following in the recent Weekly Market Insight, which remains valid heading into the final full week of February (italics):

In the company of the weekly timeframe’s Relative Strength Index (RSI) voyaging north of its 50.00 centreline (followed by positive divergence), BTC/USD appears poised to target a falling wedge (between $25,214 and $17,567) pattern’s profit objective at $26,774, closely trailed by resistance at $28,844.

As evident from the daily timeframe, the unit came within a whisker of crossing swords with demand at $20,548-21,326 on Monday and closed the week welcoming Quasimodo resistance at $24,666. This level, combined with potential negative divergence from the RSI, could hamper buying this week. Ultimately, though, if this level cedes position, the weekly timeframe’s pattern profit objective at $26,774 will likely be next in the firing line regarding upside objectives, closely followed by daily resistance at $28,849.

Of technical relevance is the trend direction in this market. While I briefly alluded to the weekly timeframe’s trend structure above, the daily timeframe is trending higher. Supporting the current uptrend, of course, is the Golden Cross that was established in early February: the 50-day simple moving average at $21,160 venturing above the 200-day simple moving average at $19,720. This represents a long-term bullish trend signal.

Out of the H1 timeframe, early trading on Friday discovered support from a Quasimodo resistance-turned-support line at $23,348, a level set nearby a 50.0% retracement ratio at $23,312. As you can see, later during Friday’s session, price subsequently tested and faded the underside of the $25,000 psychological level (note that this level has served well as resistance since August 2022) and is, at the time of writing, threatening to retest $24,000.

Direction:

According to the weekly timeframe, buyers are in command and daily Quasimodo resistance from $24,666 is vulnerable. As such, the aforementioned level will be closely monitored this week. Nearer term, $25,000 is a key watch on the H1 chart as chalking up a decisive close north of the figure indicates $24,666 resistance on the daily timeframe is perhaps coming to an end. A break above $25,000 on the H1 that’s followed up with a retest, therefore, may see buyers put in an appearance and attempt to trail until weekly (pattern) resistance from $26,774. Alternatively, H1 price dropping in on $24,000 and holding could equally be appealing to buyers this week, particularly if the retest is formed in the shape of a clear bullish candlestick pattern.

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