Investors are becoming nervous. In front of a weekend which is likely to result in a referendum in Crimea opting for a return to Russian rule, the political tensions were ratcheted up yesterday as China moved to side with Russia. Putin is reportedly strengthening his military presence on the eastern border with the Ukraine and this is having an impact on the price of risk assets. Equity markets sold off yesterday with sharp declines in Europe, Wall Street and overnight in Asia being seen. Investors are opting for the classic safe havens of the Japanese yen and gold, while strong moves higher in the Euro and Sterling were retraced.
Concerns over the slowing of economic momentum in China have also resulted in a number of investment banks downgrading their outlook for the world’s second largest economy. This all mounts up to continued pressure on European trading today, with early moves suggesting further pressure today.
Investors will be watching for US data releases with the PPI (factory gate inflation coming at 12:30GMT and the University of Michigan Consumer Sentiment at 13:55GMT, however geopolitical concerns are likely to be the defining factor today.
Chart of the Day – DAX Xetra
The DAX is coming under increasing pressure. Yesterday’s precipitous decline has seen a breach of the key February low at 9071 and a new 2014 low. Arguably now, a two day close below 9071 would complete a top pattern which would imply further weakness at least towards the October lows when the Dax was trading around 8490. The key support to watch now is the 8984 key December low which would confirm the top pattern. The RSI is an interesting signal now on the daily chart because it is at 32 and has not gone below 30 since July 2013. This current sell-off is not terminal and for now is just a correction within the primary uptrend channel (which has support around 8700 currently). Resistance on the intraday chart comes in at 9142.
A day of sharp movements has seen the Euro being dragged back into the support band around $1.37840 when during the morning the talk had been of moves towards $1.4000. The volatility of the moves suggest that technicals were not driving the intraday trading, more that events once more surrounding Russia and the Ukraine are having a bearing once more. It would appear that Asian traders have been comfortable with the new level as the support has formed overnight. The daily chart merely shows a consolidation above $1.3822, which is allowed bullish momentum indicators a chance ot unwind slightly. In the absence of any further worrying developments in the Ukraine, the outlook for the Euro remains strong and ultimately we expect an upside bias. Initial resistance at $1.3877 and $1.3892. Breaching the support band $1.3824/$1.3832 would open $1.3792.
In a similar fashion to Euro/Dollar, the chart of Sterling/Dollar has merely unwound the initial drive to the upside from yesterday morning. This has formed a negative candlestick on the daily chart but also further muddies the waters of an increasingly messy outlook. Daily momentum indicators are increasingly neutral and the intraday hourly ones are giving probably even less guidance. The one positive to comes out of this is that once more Cable seems to be looking towards the 38.2% Fibonacci retracement level of $1.6603 as a basis of support. Early indications for the European trading session is that the support is holding which could begin to regain some poise. A move above $1.6647 would improve the outlook for a move back towards yesterday’s high at $1.6716. However, this could be once more a nervous day of trading as investors asses the potential for risk in front of a potential escalation of events in the Ukraine next week.
An incredible turnaround amid a flight to safety has seen a significant decline in Dollar/Yen. The intraday top pattern played out perfectly with the resistance once more around 102.83 providing the basis for a sharp sell-off. The implied target of 101.90 has been more than achieved with the next key low at 101.17 now within sight. Overnight consolidation has helped to unwind oversold intraday hourly momentum indicators to help renew downside potential once more. The difficult element to this chart is that the move accelerated as news of China’s stance on the Russia filtered through. This chart is moving on geopolitics now and the reaction today could be equally as unpredictable. The initial reaction seems to be to opt for the safe haven of the yen which could easily see 101.17 tested. There is though plenty of room for a pullback rally, with a move above the overnight high at 101.87 opening 102.38.
The “insurance” trade returned into play yesterday to push gold higher and go a long way to restoring positive configuration on daily momentum indicators. A slightly bout of consolidation overnight has allowed intraday hourly technical indicators to unwind and now the support around $1364.04 will take on increased importance. Whilst the tensions in the Ukraine continue to mount moving into the weekend, expect pressure on the resistance of the overnight high at $1376.02. Technical indicators are positive and there is little reason at the moment to suggest the bulls will not pull the price higher in due course.