Once more on Friday, Wall Street managed to eek out very minor gains to push indices higher, but the tentative nature of trading suggests caution still remains. The geopolitical events in Ukraine continue to drive sentiment with news over the weekend that in Donetsk 89% of the ballot voted for independence from Ukraine in a referendum decried as being illegal by both the Ukrainian government and the EU. The impact on Asian markets has been fairly muted, with slight gains seen, whilst the European indices are opening also with slight gains.
Forex trading risk appetite is actually fairly reasonable in early trading today, with gains for the Euro, Sterling and specifically the New Zealand Dollar, while small gains on Dollar/Yen also reflect supportive risk appetite.
There is very little by way of economic data releases today for traders to focus on, so attention will be on the reaction to yesterday’s illegal referendum in Donetsk and how this impacts on geopolitics in the region.
Chart of the Day – EUR/GBP
The sharp downside break on Thursday from the near term range £0.8187/£0.8258 implies £0.8120. The daily momentum indicators suggest that further pressure can be expected, although the support that has come in overnight has come at the key low at £0.8154. There is a slight bullish divergence on the intraday hourly momentum indicators which suggests that there could be a near term rally. Selling into any recovery towards the £0.8187 old support turned resistance seems to be a good strategy. The daily chart also shows that the falling 21 day moving average is also a basis of resistance now at £0.8215. Expect further downside pressure on £0.8154 and then towards £0.8100 in due course.
Having broken the key near term support at $1.3775 the outlook for the Euro has turned far more negative, with the uptrend since July having been broken. However whilst the Euro trades above its 144 day moving average (currently $1.3700) and the key April reaction low at $1.3671 remains intact, then this may still turn out just to be another correction that should be bought into. The early Asian trading has been fairly benign with support coming in around $1.3743 on the hourly intraday chart and gains being made as European trading takes over. The initial resistance is the old support at $1.3775 and this will be a good gauge for the appetite of the bulls. A failed recovery around here would signal an acceptance of the move and put further downside pressure on.
With Cable close to a band of support between $1.6785/$1.6841 on the daily chart we are going to find out a lot about the desire to continue on this bull run for Sterling in the next few days. The daily RSI is already at a 1 month low, while Stochastics are also in reverse. The 3 week uptrend broke down on Friday, also with intraday hourly momentum indicators suggesting a corrective outlook now. There has been some overnight support come in at $1.6830 with some upside reaction underway as the European traders take over. The underside of the old uptrend comes in at $1.6890 with a resistance band up towards $1.6920. A failure underneath the uptrend should see the support at $1.6830 under pressure once more.
Once more it seems as though the support of the slightly rising uptrend is doing a job as Dollar/Yen pulls higher. However the move just looks to be another chance to sell with the outlook on the daily chart still deteriorating. The intraday chart shows the resistance around 102 which has held back previous recoveries. We should also consider the 144 day moving average which had been supportive, now as resistance at 102.20. This makes the coming hourly key to any recovery. A move above 102.18 would be a big psychological move for a recovery as it would break above a reaction high within the sell-off and open up the upper region of the trading band up towards 102.83. Subsequently it would be best to see how trading develops to see whether this is another chance to sell. Continued failure around 102 would suggest that it is.
The uncertainty surround the gold chart continues to grow. On the daily chart, there has now been two successive doji candlestick patterns (open and close a the same point) denoting a loss of conviction as the price continues to trade between $1285/$1295. This would suggest that a breakout of this range could result in a decisive move in the direction of the break. Technical indicators continue to suggest there is greater downside pressure seen on both the daily chart and also the intraday hourly chart. There has already been an early attempt to break lower which hit $1279.60 before pulling back into the range. However, it seems as though the sellers are trying to gain control and I expect a test of the $1276.60 May low in due course.