Do We Have Enough Fuel for the Next Bullish Week?

Last week was a week of corrections. Instruments in a deep downtrend stopped falling for a while and assets in strong uptrends experienced bearish corrections. After a week of this, a simple question arises:  Was that just a one-time thing or a proper start of a trend reversal? As always, we’re about to find out.

The key event last week was the rate decision in the Eurozone. The markets were expecting a rise but the ECB surprised us by raising its rates slightly more (50bp vs 25bp expected). As often happens, EURUSD experienced a whipsaw kind of movement. The first reaction was to the upside but then the price quickly dropped to fresh lows for the day. On Friday we had a continuation of the drop in the first half of the day, and the rise at the very end of the week. The slide seen in the morning of the European session was mostly due to bad PMI data from the Eurozone, especially from the German Manufacturing and Service PMIs, which both fell below 50 – a magic barrier signaling recession. As a consequence, we start the new week on EURUSD precisely in the same place as before the rate decision.

The end of the week also brought us a correction on the Japanese yen. It started on Thursday, after the monetary policy statement from the Bank of Japan. USDDJPY fell below the 136.8 support and set the mid-term sell signal for this instrument.

Last week could be crucial for gold. After months of a bearish trend, the price finally reached a concrete, long-term support on the 1680 USD/oz. Reaching that support is one thing, but actually using it for a bounce is another and bulls managed to do that. It seems that sellers on gold will take five and we should see some rises here in the nearest future.

It was a decent week for indices as well. Most of the major assets in this class managed to break crucial resistances and rose significantly. DAX, Nasdaq and SP500 managed to set the highest levels in July. Apart from the central banks, indices will be influenced by the earning season. On Tuesday, we’ll see data from Microsoft and Alphabet. Meta (Facebook) will join them on Wednesday, while Amazon and Apple will post earnings on Thursday.

If we had to point out the single most important event this week, it would of course be Wednesday’s interest rate decision from FED. Market expects a rise of 75bp, so quite a solid one. A rise of 100 or even more would be a great reason for the EURUSD to fall below parity.

Wednesday will also bring us the CPI data from Australia. The recent data from Australia was mostly bullish, which strongly supported the AUD over the last few days. The number expected is 1.9% q/q and with the current surroundings it wouldn’t be hard to beat that one too.

Setups for This Week:

Gold

Primary View:

Reaching the 1680 USD/oz support stops the downtrend, at least for a while

The price created a weekly bullish candle – the first one since the beginning of June

The target is on the 1780 USD/oz

Alternative View:

The price breaking the 1680 USD/oz would bring a strong sell signal but chances for that are now limited

GBPUSD

Primary View:

Last week finished with a rise and the price being close to a crucial resistance

The Cable created an inverse head and shoulders pattern and for the buy signal, we need to see the breakout of the neckline around 1.202

The price already broke the mid-term down trendline, which is promising

Alternative View:

If the price bounces off the orange area, the iH&S pattern will be denied

USDJPY

Primary View:

Last week brought us a reversal on yen

The price managed to create a head and shoulders pattern (orange) and USDJPY already managed to break the neckline (green), which at the same time is a mid-term uptrend line

Another broken support is the 136.8 (blue), which only strengthens the bearish case here

Alternative View:

The USDJPY climbing back above the 136.8 resistance would cancel the sell signal on this instrument