Charts Of The Day: Oil swings and dollar rebounds

Market Analysis / 4 Min Read
Milan Cutkovic / 07 Jul 2021

HIGHLIGHTS:

  • The focus for traders right now is on the wild price swings in the oil market, where USOIL plunged
  • In FX, safe havens were in demand while commodity currencies came under pressure
  • For EUR/USD, a test of support level appears inevitable with the currency pair failing to gain momentum
  • Are we at the beginning of a larger short squeeze in USD/CAD?

Oil Markets - OPEC

The focus right now is on the wild price swings in the Oil market and the Dollar rebound. Meanwhile, equity markets continue their consolidation ahead of today´s release of the FOMC meeting minutes, and bond yields are declining at the same time.

Traders are not convinced that the OPEC+ alliance will fall apart. A price war would not benefit anyone, and despite the tensions, it is more likely that there will be another meeting in the coming days where an output hike will be announced.

USOIL plunged today, falling from $76 to almost $72.; it fell below the rising trendline from the late May low and the next major support level is seen at $71.60. Stronger support can be expected in the $69.45-75 region. To the topside, imminent resistance is noted at $73.86, while the area between $75.60 and $76.33 could see greater selling interest should USOIL reach it again.

Volatility is likely to remain at elevated levels until there is more clarity how OPEC+ will proceed.

Currency Markets

In FX, safe havens were in demand while commodity currencies came under pressure. AUD/JPY – a popular risk barometer – plunged. The currency pair is currently testing 82.82 support. A clear break below this level would pave the way for a correction towards at least 82.11. Bulls will need this level to hold, or losses may extend towards 80.66 and eventually the 200 DMA.

Looking at EUR/USD, a test of the 1.17 support level appears almost inevitable. The currency pair failed to gain momentum after initially bouncing off 1.1810 support and a breakout to the downside could follow soon.

Could this be the beginning of a larger short squeeze in USD/CAD? Much will depend on the short-term direction of Oil prices, but partially also tomorrow´s FOMC meeting minutes which could dictate the direction of the Greenback. Traders will be keeping an eye on the 1.2485 resistance level. A daily close above this figure could pave the way for a recovery rally towards at least 1.2655 and eventually the 200 DMA. Looking at the Daily chart, the RSI is not hinting at overbought conditions yet, so USD/CAD could have more room to the topside.

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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