Charts Of The Week: The consolidation of US equity markets

Market Analysis / 4 Min Read
Milan Cutkovic / 31 May 2021

HIGHLIGHTS:

  • Despite the all-time high being within reach, the US30 index has been struggling to gain significant momentum
  • Increased attention on the US2000 as investors rotate from growth to value stocks
  • European equities proving resilient
  • Metals have been marching higher, but much will depend on the direction of the US Dollar
  • While AUD/USD has barely moved in past weeks, AUD/JPY is an interesting one to watch

US30

Markets are likely to have a quiet start to the new trading week, with both US and UK markets shut on Monday due to a public holiday. Nevertheless, volatility should pick up towards the end of the week as traders anticipate the latest US employment numbers, with ADP Nonfarm Employment Change and Initial Jobless Claims on Thursday, followed by the NFP and unemployment figures on Friday.

The market is expecting a NFP figure of 650k, but investors are cautious following last month´s disappointing data. Should the NFP print again come in below expectations, the US Dollar is likely to come under renewed pressure, while the stock market would extend its rally as some heat would be taken off the Federal Reserve. The central bank has done its best to ease inflation fears, but those concerns are unlikely to disappear anytime soon as the risk of the US economy running too hot remains present.

US equity markets are consolidating. Looking at the US30, the all-time high is within reach but the index has been struggling to gain significant momentum in the past few days. It is currently trading within a triangle and immediate support is seen at 34.495 points. A break below this level would pave the way for a test of 34.220 support. The charts are suggesting that the US30 could continue its consolidation for a while. However, with the broad uptrend intact, an upside breakout seems somewhat more likely. Traders will be keeping a close eye on the 35.105 level for resistance.

US2000

Similar price action can be observed in the US2000. However, with the rotation from growth to value stocks, the index is getting more attention. Imminent resistance is seen at the upper trendline of the triangle. A breakout above this line could pave the way towards the all-time high at 2370 points. The RSI is not signaling overbought conditions yet, so the index might have more room to the upside.

GER30

European equities have proven to be more resilient than their US counterparts during the most recent sell-off. The GER30 bounced off 15.350 support and is approaching the all-time high again. The index is facing strong resistance above the 15.500 level, but bulls have the upper hand as long as support at 15.000 points remains intact. To the topside, imminent resistance is seen at 15.548 points, followed by the 15.604 figure – the next big hurdle for the GER30. 

Gold Markets

Metals have been marching higher, but much will depend on the direction of the US Dollar. Inflation fears have eased slightly, and it has been primarily the weakness of the Greenback that has supported Gold prices. Friday´s NFP figure could therefore determine its short-term direction.

The Daily RSI is showing overbought conditions, suggesting XAU/USD might face larger headwinds in the near-term. The next significant resistance level lies at $1960. A clear breakout above this level would then pave the way for a continuation of the rally towards $2000 – a key psychological resistance level. To the downside, $1850 remains the major line of support that Gold bulls will have to defend to keep the upper hand.

AUD/JPY

The Reserve Bank of Australia (RBA) will likely announce on Tuesday that rates are staying unchanged; not much has changed since the central bank´s last meeting and the potential for surprises is low. However, the RBA is likely to show itself from a slightly dovish side following mixed economic data.

While AUD/USD has barely moved in the past few weeks, AUD/JPY is a more interesting currency pair to watch. Key resistance is seen between 85.45 and 85.80, and it has struggled so far to get through this obstacle. However, the uptrend remains intact and the Daily RSI is not signaling overbought conditions yet. A clear breakout above 85.80 resistance could potentially pave the way for an extension of the rally towards 90.

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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