Technical Tuesday: USD/CNH, WTI, S&P and Russell

Finger pointing on market chart data
Fawad Razaqzada
By :  ,  Market Analyst

Welcome to Technical Tuesday, a weekly report where we highlight some of the most interesting markets that will hopefully appease technical analysts and traders alike.

In this week’s edition, we are getting technical on USD/CNH, crude oil and a couple of US equity indices. So, there’s something for everyone.

 

USD/CNH consolidating after breakout

 

In the land of the blind, the one-eyed is king… or something like that. Although the US dollar gave up its earlier gains, the renewed strength over the past few days means investors still prefer the greenback. With the US economy holding its own better than Europe saw the EUR/USD drop to below 1.0150 and GBP/USD to sub-1.2050, before both bounced off their lows. The US is also an energy exporter, and the fact that there’s a gas deficit in Europe, which the US is helping to address, gives the dollar an obvious advantage. Same for the Canadian dollar. In other words, the energy shock is positive development for the greenback. What’s more, the likes of the PBOC and the BOJ are providing monetary support, which is keeping the yen and yuan under pressure. With the yuan weakening, this is also making commodities sold in USD more expensive for Chinese buyers. This is why the likes of the Aussie have also struggled in the last couple of sessions.

With the USD/CNH breaking out of its triangle consolidation pattern, watch out for further gains for this pair. Put another way, more renminbi weakness is on the way, which could negatively impact the Aussie. Key support comes in at 6.7800 to 6.7900 area, which was previously resistance.

usd/cnh

Crude oil drops on China, Iran nuke deal hopes

 

Oil prices have been going lower mostly because of two reasons. The possibility of a deal for Iran means more supplies could hit the market. Second, with the yuan weakening sharply because of disappointing Chinese data and the PBOC’s swift intervention, this is also making commodities sold in USD more expensive for Chinese buyers. If we see more renminbi weakness, which is now likely, this could negatively impact crude oil and metal prices.

With oil prices again selling off after a brined respite, support around the $86.50 level could finally give way and drop to $85.00 next. But given the energy crisis and a still-tight market, the downside should be limited. We reckon WTI at $80 might find dip buyers, should it get there.

wti

 

S&P 500 testing 200-day

 

US indices turned positive after an earlier dip as crude prices sold off. The likes of the S&P and Russell are now testing their 200-day moving averages. With a not-so-great macro backdrop, we could see some long-side profit-taking around current levels, which may lead to some weakness.

The SPX faces additional resistance with the bearish trend line also coming around or slightly above the 200-day average. Watch out for a possible reversal here.

S&P 500

Russell above 200-day for now

 

If the SPX turns lower, this will also impact the Russell and other US indices. That, in turn, could bring out the hibernating bears to pounce again after what has been a sizeable recovery. It is worth watching the Russel as well, for it has – for now – climbed above its 200-day average but this could turn out to be a false move.

russell

 

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