Trading charts

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WTI crude rebounds, can it break above 40?

WTI crude futures (XTIUSD) have bounced back from Wednesday’s sell-off after finding support in the 20-day EMA (blue line). As it claims back the losses, can it break above $40 per barrel this time?

Price has been chopping around sideways between 35 and 40 for a while now as investors worry about a second wave of COVID cases. The US crude has found resistance at the 40.50 handle amid the new wave of uncertainty. As price has another run to this level, watch for a potential break out in the form a higher daily close. When price settles above this level, the bulls will be encouraged to take it further.

From there, traders are eyeing the 61.8% Fib retracement of the January - April sell-off, at 44.10. When WTI breaks above 40.50, this level becomes the next target. It sits just below the important 200 day MA (black line), currently at 45.15. Above the 200MA, many traders will have confidence in the oil market again and could inspire some sharp moves higher.

The proximity of the 61.8 Fib level and the 200MA makes this a huge target, and an eventual daily close above these levels will cause a lot of excitement, and possibly a FOMO trade to ride higher. 

In an early sign of new restrictions, New York, New Jersey, and Connecticut have mandated a quarantine period for arrivals from virus hot spots. This comes despite insistence from the White House that there will be no repeat of lockdown measures that crashed the US economy in March. Yet the more the virus gets out of hand, the higher the possibility of some form of travel restrictions: a prospect that could send shockwaves through the oil market once again.

US crude inventories continue to build, highlighting a persistent oversupply issue. Significant short-term uncertainties loom over the recovering market. 

Sean MacLean

Research Strategist

Chart of the day: USDJPY – a bear trend in the making?

USDJPY has been well traded by clients of late, predominantly as we’re seeing better movement in the pair. There’s an interesting set-up in the technicals and price action, where on the daily timeframe we’ve seen a bearish outside day reversal, with price tracking above Monday’s high only to close firmly below its low. This tends to signal a change in market structure, although we need to see this confirmed with price making a lower low.

Since 11 June there has been a floor in price at 106.58 and we currently see price just below here. Consider that price is also just below the pivot point, and the 5-day EMA, which is headed lower and containing any rallies. Given these dynamics in price and the technical set-up, if we see sellers kick in it could open a quick move into 106.00, which is where the buyers stepped in in early May (as well as S1 on pivot points). A break here would be interesting and could bring the BoJ to become more vocal on JPY strength.

One to have on the radar, where the ability to react if this cracks it could be quite profitable.

Also, when looking at the broad rhythm and feel of the flow, we can take the timeframe out to the monthly chart. Here we can see a bearish outside month reversal in the making, with price trading above May’s high and eyeing a move through the May low of 105.99 - so this is quite important as a monthly bearish reversal could be quite powerful.

So, a bias for price to move lower, with stops to close on a daily close above 107.05.

Chris Weston

Head of Research

AUDNZD: RBNZ meeting and central bank divergence

The Reserve Bank of New Zealand (RBNZ) will hold the cash rate at 0.25% at its policy meeting tomorrow and likely maintain the dovish stance it emphasised at its May meeting, holding the New Zealand dollar (NZD) lower.

Meanwhile across the ditch, the Reserve Bank of Australia (RBA) has been noticeably less dovish. The central bank sees a fairly positive economic outlook and has talked about tapering its QE program.

This makes AUDNZD a vehicle to trade increasing central bank divergence in each country. The pair is advancing today as markets anticipate increasing policy divergence.

Since 5 June, AUDNZD has mostly traded in a band between the 20-day EMA (blue line - behaving as resistance) and the 50-day EMA (purple line - behaving as support). The pair is pushing higher on relative NZD-weakness this morning ahead of tomorrow's RBNZ meeting.

At the May meeting, Governor Adrian Orr showed the central bank would consider every policy tool in the kit, even asking domestic banks to prepare for negative rates. He’s since had six weeks to mull further over these tools, and we might get more of an idea of what he’s ready to deploy to support the recovery. Further QE is most likely the next step - and in a recent interview with CNN, Orr was pleased with the success of his QE program.

New Zealand has virtually eliminated the virus and unwound social restrictions, however the country remains far from a recovery. The country’s economy is export-driven and hugely dependent on tourism. Add to that it’s agricultural exports, which are skewed to the premium end of the market, it’s a vulnerable position to be in amid travel restrictions and a global wave of unemployment.

So despite the domestic economy reopening, Governor Orr won’t want to appear too optimistic for fear of lifting the exchange rate and hurting export competitiveness. The RBA on the other hand hasn’t expressed much concern about a strengthening AUD. 

Geopolitical tensions will continue to drive both these currencies. AUD and NZD are both sensitive to the souring US-China relationship, while Australia's own relationship with China is also vulnerable. And when the antipodeans fall, AUD tends to fall harder. For the next round of central bank divergence, the RBA’s next policy decision will be announced Tuesday 7 July.

Sean MacLean

Research Strategist

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