Perhaps it should be whispered by after two weeks of tumultuous volatility, financial markets are returning back to what would normally be expected of mid-summer trading. Calm, low volume days with reduced volatility and few scares. With improved investor sentiment, today is shaping up to be a third straight day of serene gains for equities, whilst major forex currencies are rebounding against the dollar as the “war-premium” trade looks to be off the table. The VIX Volatility index continues to retrace the sharp gains of the last couple of weeks as the investment outlook calms down.
I will try not to let the cynical part of my trading psyche detract from the upbeat sentiment. I will therefore refrain from delving too deeply into the apparently dovish comments by President Putin yesterday and the convoy of Russian humanitarian aid currently looking to negotiate its way over the border with Ukraine. I will only caution that the geopolitical tensions over the past few months have been through ebbs and flows on numerous occasions and as yet there is no end in sight.
We move into the US session with European equity markets bouncing strongly, the dollar under slight pressure and gold flat. There are a number of releases that we need to be aware of this afternoon that could easily impact on markets, but for now investors see the glass as half full. The US Producer Prices Index is not expected to suggest too much inflation at the factory gate in the US this afternoon at 13:30BST, which should not give the dollar too much support, however if the Capacity Utilization portion of the Industrial Production data that is released at 14:15BST continues to increase, then the hawks on the FOMC will be more interested and this would help the dollar if there is an increase above the 79.2 forecast. Furthermore, a strong Michigan sentiment number at 14:55BST (above the 82.5 forecast) would also strengthen the dollar.
Once again the euro is trading on a bid today. If EUR/USD can begin to push above $1.3400 and find support above it then the outlook for a rebound could become a reality finally. GBP/USD has bounced slightly on the second reading of the Q2 UK GDP data which came in a shade higher on the annualised number to 3.2%. There is still room to unwind with the next real resistance not coming in until around $1.6750. Dollar/Yen has continued to push higher towards the resistance band 102.80/103.00 as the improvement in risk appetite has pulled the pair higher over the past few days.
The biggest move can be seen in the European equity markets with the DAX around 0.9% higher. The intraday base pattern that was completed yesterday above 9199 (which is a good basis of support now) and continues to push towards its implied target at 9490. There is an historic pivot level at 9400 which could provide resistance on the way, but the bulls are certainly with this rally now. The base pattern on FTSE 100 is also helping the index higher and solid gains towards the 6770 implied target are being seen, with near term support at 6700.
Both gold and silver continue their consolidation patterns that they have been throughout the week and we must await the next move before chasing a direction. Gold is stuck between $1305 and $1322.70. Silver needs to breakout of the $19.6/$20.15 range.