The prospect of all out civil war in Ukraine appears to be growing ever more possible by the day now and investors looked to lock in profits on Wall Street last night. This attitude of risk aversion swept into the Asian markets as well, with the Nikkei trading 2.8% lower having to cope with a sharply strengthened yen. Early European trading is also reflective of the nervousness, with equity markets lower. Forex trading early this morning shows the yen continuing to strengthen in a classic sign of flight to safety, although the dollar has rebounded slightly against other major currencies. The Dollar Index has been on a terrible run of late, yesterday falling to the lowest since October 2012.
Janet Yellen moves to centre stage today as she gives her testimony to the Congress Joint Economic Committee. With the latest statement from the Federal Reserve seemingly looking to settle speculation down over interest rate hikes, it is unlikely that Yellen will say anything really controversial today at 15:00BST.
Chart of the Day – S&P 500
There have now been two attempted assaults on the all-time high at 1897 which have rolled over before a serious challenge was made. Last night’s correction of just under one per cent all but wiped out the mid-session recovery from Monday and suggests the bulls are getting nervous once more. Technically we are beginning to see some negative signals creeping up, with the Stochastics having crossed over in overbought territory, while MACD and RSI are also turning lower. The daily chart suggests that 1850 is a key low near term, with a failure opening 1840 and then 1814. The intraday hourly chart is not suggesting all is lost quite yet with initial support in the band 1860/1866. However, hourly moving averages are converging and look to be turning negative and that downside pressure is building. A break back above 1891 would though negative the corrective outlook.
After three weeks of sideways consolidation the Euro finally mustered the impetus for an upside break above $1.3905 which has opened the key high at $1.3967. The technical outlook remains strong with positive moving averages and bullish momentum. The RSI is strong at 65 and has further room to run in this current bull leg with previous runs higher getting to 68 or above 70. The immediate move yesterday just peaked out at $1.3951 before a consolidation set in which is helping to unwind intraday exuberance, but there is a good basis of support now between $1.3890 and $1.3905 with the previous breakout and any retreat towards here should be viewed as another chance to buy. A breach of $1.3863 would begin to question the immediate upside. One crucial fundamental factor today is that Janet Yellen speaks at 15:00BST which could create significant volatility.
On the daily chart it would appear as though Cable is only going one way, and that is higher, with the rate moving to a new high that dates back to August 2009. However there are a few signs that suggest caution, at least when it comes to chasing it higher. The RSI is at 73 which is the highest since September, while the early day’s range is now trading entirely outside the Bollinger Bands (a position that denotes an extreme move liable to correction). On the intraday hourly chart, having reached the high at $1.6996 the rate has hit some consolidation which is looking to unwind some of the run. There is an uptrend, currently at $1.6850, that Cable has been over the past three weeks, which the rate has just run away from. A correction within this trend looks to be increasingly likely, but shorting within an uptrend tends to be a risky play. However a retreat back towards the previous breakout at $1.6918 is perfectly possible in the near term. Again the big unknown to this chart is Janet Yellen’s testimony this afternoon at 15:00BST.
The weaker dollar has once more dragged Dollar/Yen back towards the support of the bottom of the three month slightly rising trend channel. The pressure is on once more with the shorter moving averages turning over and perhaps more significantly a breach of the 144 day moving average which had been the basis of support for the last few months. Deteriorating momentum indicators suggest the downside pressure is increasing. Looking at how the recent dollar recovery fell over only around half way up the channel suggests that the sellers are mounting. A breach of 101.31 would quickly open 101.17 with the 100.76 low being the critical medium term support. The Asian trading overnight is yet to breach yesterday’s low at 101.48 but a mini reaction high has been left at 101.73 which failed to breach the resistance of the old support at 101.83. Tis would suggest that strength looks to be a chance to sell. To turn the outlook around there would need to be a move above the 102.18 reaction high.
This is now becoming an important phase for the gold bulls. The last two rallies above $1300 failed to really build support and subsequently failed to sustain any ground above. The intraday hourly cart now shows that there is a good band of support around $1305 which has initially been held as the hourly momentum indicators consolidate a positive position. If there could be a break back above $1315.60, Monday’s high, then this would now be a strong near term move and open for $1330.90. The daily chart is not as positive as the intraday chart though, suggesting that more needs to be done to sustain the recent recovery. A move back below $1300 would change the outlook once more though.