12/03/2014: Safe haven assets benefit as risk appetite falls away once more

Market Overview

Amid a dearth of economic announcements, investors have been starved of inspiration and markets have subsequently drifted lower. Wall Street completed a disappointing session with losses of around half a per cent, However, the Asian session shows that there could be an increasing flight to safety once more. Media reports that the G7 could be set to declare Russia’s potential annexation of Crimea to be in violation of international law has brought back into focus the ramification of potential sanctions. Asian markets felt significant losses overnight, whilst there have been gains for gold and the yen once more.

Added to this, there are increasing concerns that the continued sell-off in the copper price could be a barometer for the Chinese economic prospects with the subsequent spill over for the rest of the world. The Japanese yen strengthened and as a result the Nikkei 225 lost over 2% on the day, whilst Japanese consumer confidence also missed expectation.

European markets have been under pressure early in the session. Again this is another day light on data, with Eurozone Industrial Production at 10:00GMT the only real announcements that Europeans traders might be interested in. Therefore the pressure could remain through the session. There could be some action on the Kiwi dollar tonight with the New Zealand central bank rate decision at 20:00GMT, whilst Australian unemployment could also have an impact on the Australian dollar overnight.

Chart of the Day – EUR/JPY

Although the daily chart continues to suggest that the medium term outlook is improving, the prospect of a near term correction is increasing once more. With the RSI turning lower, there has been a crossover sell signal on the Stochastics and there certainly looks to be room for a correction to unwind back to the support around the breakout high at 141.26. After a few days of consolidation Euro/Yen is beginning to fall over. The intraday support around 142.48 is coming under increasing pressure and a breakdown would complete a top pattern which would target a correction to 141.36. Intraday hourly moving averages have turned lower and the 21 hour moving average is now acting as a basis of resistance. A correction would be a healthy development within the medium term bullish outlook..

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EUR/USD

The Euro has barely moved for the past two days. Instead traders have been subjected to a very slow drift lower as the Euro gradually looks to unwind some of the exuberance from last week. Daily technical momentum studies remain strong but are just in a slight correction mode, with the RSI having reached 66 on Friday which is a historic stretched level. Interestingly perhaps, the intraday hourly technical indicators have now fully unwound now which means that we are looking for the next signal. The support band $1.3775/$1.3825 is still a possible target area where buying potential could resume.

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GBP/USD

Cable has now returned to once more find support around the 38.2%  Fibonacci retracement of the previous $1.6250/$1.6822 bull run which comes in at $1.6603. Yesterday’s low however was at $1.6594, which was above the key low of $1.6581 from 24th February. This is important as a breach of this level would arguably complete a top pattern on the daily chart. So far the support has remained intact and overnight the buyers have begun to come back in. A move above yesterday’s high at $1.6653 would improve the near term prospects, whilst intraday momentum recovers. The next resistance higher comes in at $1.6683.

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USD/JPY

Last week’s key resistance at 102.83 turned into support after Dollar/Yen broke strongly higher on Thursday. However the consolidation in the rate since that breakout is now seriously testing the support. On the daily chart this equates to four straight days where the lows have tested the support. Momentum indicators are just beginning to roll over and gives concern that the upside potential is waning. This is more prominent on the intraday hourly chart which shows moving averages rolling over and a potential topping pattern. The overnight pressure on 102.83 has increased, with a 102.77 low before the buyers supported. Of concern also is that throughout the past week, the hourly MACD lines have been in positive configuration above the zero line, but now they have dipped into negative. Sub 102.77 would open 102.55 support.

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Gold

A classic case of “The trend is your friend” in gold as overnight the price has once more broken to the upside after a week and a half of trading in a sideways band. The move has also seen gold break above the key October high at $1361.60. Despite momentum indicators suggesting upside impetus is waning, the price has remained strong. The flight into safe haven assets in the Asian session has certainly benefitted gold and it will be interesting to see if this continues as European trading builds. Intraday the RSI is now overbought, hitting above 70 and crossing back below overnight which this could be taken as a signal to take profits. The initial support band is $1352.50/$1354.80.

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