Charts Of The Day: Another look at exotics

Market Analysis / 4 Min Read
Milan Cutkovic / 16 Jun 2021

Highlights:

  • Markets remain relatively quiet ahead of today´s FOMC meeting, but exotics could see wild price swings
  • Global equity markets continued their consolidation
  • Oil prices have extended gains
  • USD strengthens slightly against other major currencies

Markets remain relatively quiet ahead of today´s FOMC meeting. Global equity markets continued their consolidation on Tuesday, while Oil prices have extended gains. Meanwhile, the US Dollar strengthened slightly against other major currencies.

Read our preview of this week´s important FOMC event

USD/ZAR

Exotic currency pairs could see wild price swings tonight, especially if the Federal Reserve surprises traders with a hawkish stance. Some emerging market currencies have been enjoying strong gains in the past few months, mainly driven by the risk-on market environment and rising commodity prices. The prospect of an early end of the ultra-loose monetary policy in the United States could trigger a reversal.

USD/ZAR is currently testing the falling trendline from the March high. A break above this line could pave the way for a test of 14.1515 resistance. ZAR bulls will need the topside to be capped there, as a breakout might trigger momentum buying and signal the beginning of a short squeeze. The next notable resistance level would then lie at 14.6874, followed by 15.1012. To the downside, strong support can be expected at 13.3746.

USD/MXN

USD/MXN is another exotic currency pair worth keeping an eye on. It has been consolidating in a rather tight range following a failed recovery rally in March. A hawkish surprise could push USD/MXN to 20.3320, and a clear breakout above this level is likely to lead to another test of 21.6451 resistance. However, a strong rise in Oil prices and the bullish outlook for the commodity could lead to headwinds and cap the topside at the aforementioned level. To the downside, Peso bulls are eyeing the 19.5913 support level as next target, as a daily close below it would signal a resumption of the downtrend that could see USD/MXN testing the 18.5136 support level soon.

Oil Markets

Oil prices continue to climb higher. Expectations for a return of Iranian crude oil on the international market are fading, while rising growth expectations are pushing prices higher. The latest API figures, which showed a larger than expected draw in crude oil inventories, added to the bullish sentiment.

Fundamentals are pointing to further gains in the near-term, and so are the charts. USOIL appears unstoppable after leaving the 66.29-68.14 resistance zone behind it, and the next major resistance level lies at $76.80 – the 2018 high. The Daily and Weekly RSI is hinting at overbought conditions, but the strong bullish sentiment could keep the rally alive for a while, with limited setbacks. 

Imminent support can be expected at $71.40, followed by the support zone at $70.40/50, where USOIL is likely to attract more buyers should we see a retracement.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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