Charts Of The Week: Buckling up for volatility

Market Analysis / 4 Min Read
Milan Cutkovic / 21 Jun 2021

Highlights:

  • Market reaction to the surprisingly hawkish FOMC continues, with more volatility expected this week
  • Broad Dollar strength appears to be the beginning of a trend reversal, rather than a short-term correction
  • Gold has been hit hard, losing more than $100 per ounce within three trading days
  • GBP/USD has been under heavy pressure, plus another bad sign for AUD/USD
  • US30 showed initial resilience to the FOMC surprise, but the index eventually gave in

Gold Markets

Due to a limited number of key economic data/events, the focus in this new trading week will likely remain fixed on the aftermath of the hawkish Federal Reserve surprise. The initial reaction in the stock market was muted, but the sell-off intensified on Friday. Investors should therefore buckle up for more volatility.

The FX market has been highly volatile already since the US central bank showed its hawkish side last Wednesday. The broad Dollar strength appears to be the beginning of a trend reversal, rather than a short-term correction. Gold has been particularly hit hard, with the price of the precious metal collapsing more than $100 per ounce within just three trading days.

The short-term outlook for XAU/USD has turned negative following the daily close below the 200 DMA and breakout below $1800 support. However, the Daily RSI is showing oversold conditions and there is strong support seen between $1756 and $1768. XAU/USD could therefore see a bit of a bounce from here that could lead to a retest of $1800 resistance before the downtrend continues.

GBP/USD

Similar price action can be seen in GBP/USD, which has been under heavy pressure since Wednesday. The currency pair fell below the psychologically important 1.40 level and is currently consolidating around 1.38 support. A clear break below this level would pave the way for a 1.3670 test, where buyers could potentially emerge in larger numbers. Overall, the long-term uptrend remains intact, but GBP bulls will need the aforementioned level to hold to keep the upper hand.

To the topside, initial resistance is noted at 1.3890, followed by the major resistance zone between 1.3975 and 1.4005.

AUD/USD

The daily close below the 200 DMA is another bad sign for AUD/USD, and a test of 0.7380 support appears inevitable in the short-term. The Daily RSI is signaling oversold conditions, although not at extreme levels yet. There could be further room to the downside, and a clear break below 0.7380 support could trigger further momentum selling and clear the way for a retracement towards the October 2020 low at 0.6990. 

USD30

US30 initially showed resilience to the hawkish FOMC surprise, but the index eventually gave in on Friday. It fell below the 33,294 support level, which paved the way for a correction towards at least 32,088 points. US30 bulls will need this level to hold or there could be for trouble ahead, with a test of the 2021 low at 29,630 points increasingly likely at that point.

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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