EUR/USD: Bearish acceleration
The single European currency accelerated the recent downtrend versus the U.S. dollar this past week, registering the largest weekly loss since September last year. EUR/USD dropped almost -150 pips (four-digit quotes) on the back of strong demand for put options caused by several fundamental and technical factors. First, the U.S. economy showed stronger-than-expected performance thanks to solid growth in the labour market in January. Second, a failed test of the technical and psychological resistance level at 1.1100 impacted a spike in the activity of put-option buyers. As a result, EUR/USD was trading near multi-year lows registered in November 2019.
The four-hourly chart illustrates the one-way price action the most as the number of red candlesticks is more than 73%, while the green ones were noticed during mid-session periods with weak activity and low trading volume. Thus, buying put options for EUR/USD with an expiration time of 4 hours would have brought almost 90% of profitable deals, which is an enormous performance. Besides, binary options with 24-hours expiry time were 100% in the money as the currency pair was declining throughout the whole trading week. On Monday morning, EUR/USD kept the bearish momentum, promising another lucrative week of buying put options and here is why.
The mid-term technical analysis points to a descending channel started after EUR/USD peaked on December 31. The red arrow on the chart below shows a failed test of the resistance trendline, which signalled the beginning of the trading cycle. A potential breakout of the bottom trendline might cause an acceleration as call-option buyers would be forced to remove their postponed orders to the nest support range of 1.0800/50. The Relative Strength Index with a period of 13 bars is trading below the oversold threshold, underlining strong bearish momentum. The bounce towards the line from below might signal another wave of the sell-off. The MACD trend indicator is also bearish with both lines increasing the negative depth. The only concern for the bears is that MACD histogram is nearing the zero level, which could cause a short-term bullish rebound towards former support now resistance at 1.1000. Therefore, it would be reasonable to wait for a retracement and a bearish reversal signal before starting a new cycle of buying put options.
USD/CHF: Bullish breakout
The Swiss Franc had a similar performance in terms of one direction of the trading activity this past week. However, the technical sentiment is a bit different, according to the 4-hourly chart setup below. Call-option buyers lifted the exchange rate of USD/CHF above the recent peak at 0.9760, which could complete the mid-term bullish reversal pattern. If confirmed, USD/CHF should keep climbing towards the range of 0.9830/65 and enter into a sideways consolidation there. So it is recommended to halt the trading activity in that range.
On the other hand, technical indicators are mixed. Parabolic SAR has already switched the sentiment last Friday when its lines jumped above the rate. Stochastic RSI also peaked in the overbought zone, lines performed a bearish crossover and even crossed the threshold from above. Such a performance might signal at least a short-term change in the market momentum, with a chance for put-option buyers to show some sort of a retracement. Nevertheless, call options are still in favour until USD/CHF is above the support range of 0.9700/50, so binary options traders should watch an intraday performance to catch another strong trend. Stochastic RSI could point to such a bullish reversal if its lines bounced off the middle line, heading back North.
USD/JPY: Bullish reversal
The USD/JPY currency pair traditionally reflected the price action of global equities and other high-yield assets. The exchange rate not only reversed the trend’s direction but also printed several significant technical achievements this past week. First of all, the weekly timeframe has a sign of a bullish engulfing as the latest candle is far larger than the previous two ones. Second, the weekly close rate is nearing the multi-month peak registered in January this year. Third, the Ichimoku Cloud trend indicator points to further bullish price action and here is why.
The leading span performed the bullish crossover highlighted by the green arrow on the screenshot below. USD/JPY entered into the cloud successfully without any resistance from put-option buyers, and even crossed the upper band of the cloud, continuing the buying pressure. Both Conversion and Base Lines did the same, confirming the correct displacement to keep going north. Therefore, the general direction should be upwards in the week ahead.
On the other hand, the recent inability of call-option buyers to crack a tough nut of 110.00 yens per dollar with the very first attempt could influence a deep rebound. USD/JPY appeared below the Conversion line, which should act as support during strong trends. Thus, a potential bearish retracement could push the rate as low as towards the Baseline support curve coming at 109.40/50. If the bears failed to breach it, then the upside pressure would resume and that would signal a start of a new lucrative cycle of buying call options for USD/JPY.
AUD/USD: Bearish reversal
The Australian dollar has been one of the weakest currencies among majors versus the greenback. AUD/USD dropped to the lowest rate in 11 years. Such a rare event triggered a large number of postponed orders to buy call options for the pair at around 0.6680/6700, adding the momentum to the bullish retracement. However, the rebound was short-lived and limited by the resistance range of 0.6750/70. As a result, the mid-week price action caused another U-turn for AUD/USD, and the pair declined back to the bottom of the recent range.
The Double-Bolli chart setup below shows the resistance band of the indicator with an extended period of 34 bars. The red arrow points to a strong signal to start buying put options as the bulls were unable to breach the resistance curve. After charting a new local bottom, the rate bounced back into the yellow range, suggesting that the recent momentum is exhausted and consolidation is possible. If AUD/USD had a failed attempt to breach the middle line of both Bollinger Bands indicators (0.6718 currently), then it would be a perfect chance to renew the trading cycle of buying put options as the downside pressure persists on medium-term charts. Besides, a bearish breakout of the recent low at 0.6662 could cause a panic buying of protective put options and another wave of decline for the exchange rate.