EUR/USD: Bearish reversal
Euro kept strengthening versus the U.S. dollar at the beginning of the past trading week. The upside pressure of EUR/USD was supported by strong demand for call options and the technical sentiment. Parabolic SAR was bullish as its dots were mostly below the price, while ADX had a growing positive surplus. However, ADX mainline was edging lower, reflecting the lowering bullish momentum, which was coming out of the line with the price action, causing a technical bearish divergence. The start of the divergence to play out was signalled by Parabolic SAR, the dots of which jumped above the price on Tuesday afternoon. Since then, put options for EUR/USD were in demand as the bearish reversal took place. ADX surplus turned negative, the mainline reflected strong bearish momentum. As a result, EUR/USD dropped almost 100 pips counting from the mid-week peak and ended the trading week at 1.1159, 0.12% lower than it started the week.
The current technical sentiment is mixed as both indicators diverge from each other. Parabolic SAR points to bullish sentiment, while ADX has a negative outlook. Thus, binary options traders could expect two-sided price action or a sideways consolidation at the very first part of the upcoming trading week. However, it would be reasonable to expect the currency pair to bottom out at around 1.1120 as the support range is quite strong there. So, it is recommended to consider buying call options at that support level if the technical setup would be in favour of that scenario. On the other hand, an upside swing toward 1.1180 would trigger a heavy-volume demand for put options as sellers might not step back that easy. Nevertheless, trading cycles should be kept tight.
GBP/USD: Bearish reversal
The British pound showed a similar performance this past week. Initially, there was a continuation to buy call options, until the pair reached a local top at around 1.3286. Although there was a breakthrough signal on Bollinger Bands indicator with a 20-hours period, the bullish momentum was exhausted as Williams %R oscillator reached an extremely overbought value. After the oscillator crossed the overbought threshold from above, the technical confirmation caused the bearish reversal. Another strong signal to start buying put options was noticed when the exchange rate breached the Bollinger Bands middle line, shifting the sentiment to bearish. Since then, GBP/USD was edging lower and finished the trading flat.
Although the pair is still in the bearish phase, considering Bollinger Bands, Williams %R is heading north, which would support at least a temporary recovery toward the middle range of 1.3100/50. However, buying call options is a bit early as the price should cross the middle curve first. On the other hand, if the Williams %R oscillator failed to break through the 50% level, a bearish acceleration might take place, and it would be reasonable to start buying put options during active trading hours in London.
USD/CHF: Bullish retracement
The Swiss Franc was driven mainly by the overall demand for the greenback across the board as the intraday chart of the USD/CHF currency pair reflects the price action of the U.S. dollar index. The bearish continuation at the beginning of the past trading week was diverging with technical indicators as both AWesome Oscillator and MACD were printing higher lows in contrast to lower lows on the price chart. The divergence started playing out when MACD lines crossed each other in the negative territory, while Awesome Oscillator continued narrowing the negative surplus. After both indicators crossed the line of zero, the buying pressure strengthened, leading to strong demand for call options for USD/CHF with 30- and 60-minutes expiration time. Although the technical sentiment was bullish, the upside pressure was limited by the week’s open, according to the intraday chart below.
In case if the bulls failed to lift USD/CHF above the range of 0.9738/64, the bullish retracement might come to an end, and the demand for put options would surge. This is why it is recommended to monitor the resistance level closely. Besides, if the MACD indicator turned bearish again, then the sellers might use that switch as the bullish weakness and push the rate toward the local low at 0.9646. Nevertheless, the pair looks heavy, and buying call options is too early as the bullish reversal pattern is far from completion.
USD/JPY: Bearish breakthrough
The Japanese yen was the strongest currency among majors versus the greenback this past week. Even though a technical retracement was rather predictable, the question was about a possible depth. The Ichimoku Cloud technical indicator turned bearish on the four-hourly chart below, both lines went off the span. However, the bears should have been stopped at 108.48, the bottom of the consolidation channel at the beginning of December. As long as that did not happen, and the bears broke through the horizontal support, the USD/JPY currency pair is vulnerable to further decline, according to the mid-term analysis. If the local bottom at 107.92 yen per dollar did not stand as the last defensive barrier, then the bears would send the pair tumbling towards the October’s low at 106.77 and 106.48 in extension. Put options are preferable until USD/JPY is below Ichimoku’s Conversion line resistance.