If the market reaction in early trading today is anything to go by then the shock declines of yesterday may have been slightly overdone. After Wall Street followed suit and posted a 0.8% decline, Asian markets have been able to claw back some of yesterday’s losses, with the Nikkei up 0.5%. Stocks in Sydney were also 0.3% stronger as the Reserve Bank of Australia kept rates on hold at 2.50% and the current account deficit was better than expected.
With Russian President Putin ordering an end to the military exercises along the Ukrainian border, risk appetite has improved. Many of the currency pairs that fell amid the scaling back of risk appetite have begun the process of clawing back lost ground, while the safe havens that had benefitted so significantly, such as gold have pared some of their gains. The inference is that investors are beginning to believe that the impact of the geopolitical events in the Ukraine will only be short lived on the markets and that these dips should be seen as opportunities to buy once more. European indices have bounced strongly this morning.
On a week thick with economic data, today is probably the one day where investors can afford some respite, with little more than the UK Construction PMI at 09:30GT to be of interest. Although the construction industry accounts for less than 10% of the UK economy, the PMI is considered important as it still has an impact on GDP. Sterling should appreciate if the number beats the 63.2 forecast.
Chart of the Day – S&P 500
With other markets such as the FTSE and the DAX seeing significant declines yesterday, the move on the S&P 500 was fairly muted. The support band between 1825/1848 remains intact, while the daily chart shows the moving averages all still rising and that this decline currently looks to be little more than a chance to buy again. Positive daily momentum indicators remain strong and even on the intraday chart, the hourly indicators suggest this is just a correction within the bull trend. A move back above the old high at 1850.84 which capped the gains for several days last week, would signal the regain of bull control once more. The buyers would then be looking back towards the highs once more with the resistance at 1867.92.
Considering the significant gains that the Euro achieved on Friday, the flight to safety has not impacted the Euro too significantly, with the correction fairly controlled. The intraday chart shows that the move has unwound back into the band of support around $1.3720, with an overnight low seen at $1.3719. The rate has since begun what could be the beginning of a recovery again. Intraday technical indicators are improving once more. The first test the bulls will have is the old key resistance at $1.3773, whilst a move above yesterday’s intraday high at $1.3792 would also signal significant improvement. These occasions where geopolitical events overtake the technical indicators can often produce difficult forecasting conditions, however, for now, yesterday’s price action merely looks to be a retracement of Friday’s move before further gains are seen.
After yesterday’s sell off dragged Sterling back to find a low at $1.6638 an intraday recovery. However, technically now the buyers will have to rebuild a bullish outlook with the resistance band around $1.6700 still seen as a pivot level. The price action today would suggest that there is an intent for a steady recovery once more and a move back above $1.6700 would certainly improve the outlook. Until events calm down significantly in Ukraine, investors will remain reactive and this will be a risk to any bull positions on Cable. However, the near term outlook is improving once more and the bulls will be looking towards a test of the resistance band $1.6750/$1.6768.
The recovery is gaining ground, but is yet to overcome the key resistance band 102.00/102.20 so for now this needs to be treated as a bear rally. However, intraday technical momentum indicators have improved significantly in the past 24 hours and the rate is looking to build support above 101.60/101.70. So this would suggest that Dollar/Yen is approaching a key intraday junction. Failure of this rally under the 200 hour moving average (@102.11) would see the bears regain control for the continuation of trading within the lower half of the trading band. However above 102.20 would re-open the 102.60/102.83 highs once more.
The sharp reversal of the gains from early yesterday is now testing the support at $1336.10. However, the correction has merely unwound to the 50% Fibonacci retracement (@ $1337) of the $1319.61/$1354.80 run higher. Additionally the old intraday uptrend is also acting as a basis of support. Near term resistance comes in around $1342, with more significant intraday resistance from yesterday at $1347.94. However, it would appear as though events from the Ukraine is the major driving force behind gold for the time being and this needs to be kept in mind. Any news of a calming of tensions is likely to have a downside drag on gold.