Markets to watch this week
What to watch for US Dollar Index, Brent Crude, Australia 200, Russell 2000 and AUD/USD.
US Dollar Index: Due for a corrective move lower?
Near-term bearish divergence on its daily relative strength index (RSI) may seem to call for a corrective move lower, as much around the “Trump trade” and a less dovish Federal Reserve (Fed) rate outlook may have been priced for now, which leaves room for surprises. This is coupled with weaker year-end seasonality for the US dollar, while aggregate US dollar positioning versus G10 currencies at its near five-month high may call for some profit-taking. Any retracement may leave the 105.91 level on watch as near-term support, where a 23.6% Fibonacci retracement level stands.
Levels:
R2: 109.00
R1: 107.80
S1: 105.91
S2: 104.75
US Dollar Index chart:
Brent Crude: Near-term stabilisation on geopolitical tensions
Oil prices have bounced off the US$70.40 level, proving it as a crucial horizontal level to hold, having supported prices on three recent retests. Geopolitical risks between Ukraine and Russia have edged up a notch, as both sides vie to gain some leverage ahead of any upcoming negotiations, with tensions likely to persist into year-end. Technicals reveal its daily RSI edging to its one-month high and supported above its mid-line. However, short-term upside may have to face a test of resistance at a downward trendline ahead.
Levels:
R2: 80.00
R1: 76.21
S1: 70.40
S2: 68.58
Brent Crude chart:
Australia 200: Upper channel trendline resistance in the way
The ASX 200 has been trading within a rising channel pattern since the start of the year, recently finding support from its Ichimoku Cloud as a validation of its broader upward trend. That said, the index is now back at its upper channel trendline at the 8,472 level, which may offer some short-term resistance. A bearish shooting star candle is also formed on its four-hour chart, which raises the odds of some near-term cool-off. Some weakness in gold prices to start the new week may also serve as a minor headwind.
Levels:
R2: 8,566
R1: 8,472
S1: 8,314
S2: 8,166
Australia 200 chart:
Russell 2000: Awaiting fresh break to new multi-year highs
The corrective move in mid-November this year proved to be short-lived for the Russell 2000 index, which is now back to retest its previous high at the 2,447 level. A recent bounce in its daily RSI off the mid-line offers validation for the broader upward bias, while seasonality suggests that small-caps tend to outperform into year end. With potential rotation towards the laggards, the relative lower valuation compared to other US indices may stand out as well, while still-neutral market breadth suggests that bullish sentiments are not overblown just yet.
Levels:
R2: 2,500
R1: 2,447
S1: 2,365
S2: 2,283
Russell 2000 chart:
AUD/USD: Upward trendline as key support to hold
An improved risk environment into the new week, alongside some weakness in the US dollar, may offer room for the AUD/USD to pare previous losses. Technicals revealed a near-term bullish divergence on its daily RSI, while a bounce off an upward trendline support marked a potential formation of a new higher low. This week, expectations are for an uptick in Australia’s weighted consumer price index (CPI) to 2.3% from 2.1% prior, which may validate views for rates to be kept on hold over the next few meetings. Any upside surprises in China’s Purchasing Managers' Index (PMI) may be positive for the AUD/USD as well.
Levels:
R2: 0.668
R1: 0.656
S1: 0.645
S2: 0.637
AUD/USD chart:
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