Since the peak on March 9, put options for EUR/USD were in demand as the exchange rate dropped more than 770 pips. The pair dropped to the lowest rate in more than 3 years, renewing the bottom of the long-term downtrend. Although the daily chart has most of the candlesticks in red, the intraday 4-hours timeframe underlines several waves of corrections.
One of the most effective combinations of technical instruments to measure the depth of retracement and spot entry points was the set of Williams indicators. The screenshot below shows how effective the Williams Fractals indicator was in terms of signalling reversals of the price action. The tool pointed to several moments when binary options traders had to end the cycle of buying put options, as well as opportunities to enter the market again when corrections were getting exhausted. Williams Alligator showed descending resistance curves and helped traders to measure the potential depth of the bullish rebound, acting as an additional indicator to signal periods when the downtrend was accelerating. Williams %R oscillator used to confirm the bearish momentum and point to short-term upswings of the rate, reflecting upper shadows on 4-hourly candlesticks.
Given the recent momentum and volatility, we suggest that the downside action is likely to continue for EUR/USD in the week ahead. The long-term outlook is negative and the market eyes the multi-year low at around 1.0450 dollars per Euro. Besides, if the bears were able to breach that horizontal static support, then the sell-off could head the rate to the parity, which never happened in 18 years. Therefore, EUR/USD has enough potential for the downtrend to continue in terms of historical values. However, the action is not expected to have one-way direction and short-term rebounds are possible. Binary options traders should consider using such corrections as an opportunity to find attractive entry points while the bearish momentum will be reloading. It is important to monitor short-term shifts in the technical sentiment, especially for fast and sensitive oscillators, in order to hold the hand on a fast-changing market pulse.
The British pound had a similar performance on intraday time frames, but the trading range was wider and the number of short-term rebounds was lower. Although GBP/USD lost more than -10% of the exchange rate in two weeks and renewed the negative record registered after Brexit in 2016, there are several preliminary technical signs that the local bottom has been found, and binary options traders could expect a deeper bullish correction.
First of all, the Average True Range indicator points to exceptional volatility as the line surged to extreme levels recently. That means that GBP/USD could easily have a 400-pips rally, reverse and erase all of the previous gains in one single day. On top of that, Parabolic SAR has already turned positive as its dots jumped below the price during the bullish run last Friday. The ADX and DI indicator have a mixed performance as well. The mainline reversed and headed towards the threshold, which underlines that the bearish momentum is getting exhausted. What’s more, -DI and +DI lines crossed each other, shifting the surplus to bullish thanks to the recent price action.
Therefore, the only factor to guarantee for the upcoming trading week is the large level of volatility. Given the unpredictable nature of the British Pound, we suggest that the bulls will try to retaliate and lift the rate towards the previous support now resistance range of 1.1930/1.2000 with a possible whipsaw above. Therefore, the most reasonable trading strategy is to wait and see for now. But traders should start looking for a bearish reversal point in the resistance range to start buying options again. If the bulls were unable to reverse the downtrend completely, the bears would step in with heavy-volume demand for put options, which should cause another wave of the plunge.
The Swiss Franc was surprisingly weak recently, despite the large demand for safe-haven assets. The main fundamental reason relates to the greenback’s role as the world’s reserve currency, and the binary options traders were buying call options for the US dollar in general and USD/CHF in particular. That caused a deep recovery of the exchange rate as most of the recent bearish achievements were erased.
The four-hourly chart setup below points to the bullish reversal signal on March 10 when the MACD lines performed the bullish crossover and started edging higher. The histogram confirmed the signal, turned positive and kept rising. The bullish continuation was confirmed on March 17 when USD/CHF breached the simple moving average with a period of 89 bars. The Relative Strength Index is currently hovering around the overbought level with more room to go north before extreme values are reached. The past trading week ended slightly below the 0.9900 round-figure resistance, so if the bulls were able to breach that static line, then the uptrend would continue. Bearish reversal signals are absent so far, therefore, buying put options would be too early.
The Japanese yen had similar performance with the Ichimoku Cloud trend indicator pointing to the uptrend continuation. The leading span has a positive and growing surplus after the bullish crossover, the rate is above the cloud, while Conversion line and Baseline are heading north. On top of that, the Conversion line acts as the support curve, limiting bearish rebounds. There was a perfect signal to renew the trading cycle of buying call options on Friday when the red candlestick had a long whipsaw below the support curve but failed to breach it with the close price. Therefore, the uptrend is likely to continue.
The nearest resistance is placed at the recent top of 112.18 yens per dollar. So if the bulls were able to maintain the current momentum, binary options traders would see another test of the multi-month high. Otherwise, the uptrend will be exhausted and USD/JPY could enter into a consolidation period. Nonetheless, a possible bearish reversal does not have a technical background, so buying put options would be against the trend, which is too dangerous so far.
WTI Crude oil: Bearish
THe sell-highs trading strategy worked perfectly for the price of oil this past week. After a failed attempt to breach the medium-term descending median (dashed green line on the screenshot below), WTI Crude entered into the bearish rally, which lasted almost three days. The number of red candlesticks in the four-hourly timeframe was 17 out of 19 in a row, which gave one of the most lucrative trading cycles of buying put options for WTI Crude oil recently. Despite the short-term bullish rally towards the psychological mark of $30 per barrel, the price of oil plunged back to the weekly low and closed Friday at $23.40. Given the long term target of $18.00 and the recent volatility, we expect the oil price to keep declining in the week ahead, so the trading approach should remain the same - wait for a bullish retracement and start buying put options.