Charts Of The Week: Trading through elevated volatility

Market Analysis / 4 Min Read
Milan Cutkovic / 05 Jul 2021

HIGHLIGHTS:

  • Volatility is likely to stay at elevated levels in the new trading week
  • Price swings are likely to increase as traders brace for the FOMC meeting minutes and economic data from the US and Eurozone
  • USTECH continues to post fresh record highs, but the Daily RSI hints at overbought conditions and concerns about COVID-19 wave and oil market turbulence could negatively affect the index
  • Oil could see major price swings following OPEC+ fallout
  • In FX, the focus this week will be on the Australian Dollar and the RBA rates decision, with the AUD/JPY a currency pair to watch

USTECH

Volatility is likely to stay at elevated levels in the new trading week. Equity markets may have a slow start as US markets will remain shut on Monday for a public holiday. However, price swings are likely to increase mid-week as traders brace for the FOMC meeting minutes and plenty of economic data out of the United States and the Eurozone.

USTECH continues to post fresh record highs. However, the Daily RSI is hinting at overbought conditions, and concerns about another COVID-19 wave and turbulences in the oil market could have a negative effect on the index. Imminent support is seen at 14,473 points, followed by the rising trendline from the May low and the 14,317 level.

Oil Markets

Meanwhile, Oil could see major price swings as soon as markets re-open. The United Arab Emirates blocked an OPEC+ deal on Friday, and negotiations are set to continue Monday. While oil prices might rise given the prospect of no output hike at all, there is also the risk that the OPEC+ alliance falling apart and its members starting a price war. This could send prices tumbling and have a long-lasting impact.

USOIL recently cleared another major hurdle at $74.10, which signals a continuation of the rally towards $77 resistance. However, the RSI is hinting at overbought conditions, and the air might become thinner as USOIL approaches the $77 level. To the downside, support is seen at $74.10, followed by $71.60. Oil bulls need the $68 support level to hold, as a break below could trigger momentum selling and further position covering.

Currency Markets

In FX, the focus this week will be on the Australian Dollar. The Reserve Bank of Australia (RBA) will decide on interest rates on Tuesday. While the central bank could acknowledge the strong economic recovery, it is more likely to stay dovish, with half of the nation facing another lockdown due to the delta variant of the coronavirus. Due to the high uncertainty, the RBA is unlikely to shift its stance anytime soon.

Given that the RBA could show its dovish side on Tuesday, the short-term outlook for the Australian Dollar remains negative. AUD/USD is testing the 200 DMA – which has now become a line of resistance – and this might cap the topside in the near-term. The next notable line of support now lies at 0.7420. 

AUD/JPY is another currency pair to watch. Key support is seen at A$82, and a break below could trigger strong momentum selling. The negative RSI divergence on the Daily chart is another sign that we could see a correction before the long-term uptrend eventually continues. A clear break sub-A$82 would pave the way for a test of the 200 DMA near A$80.

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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