17/03/2014: Traders ready themselves as the international community looks to react to overwhelming Crimean referendum

Market Overview

How the international community reacts to Russia now could be the defining factor in financial markets over the coming days. The overwhelming vote in Crimea in which over 95% voted to break away from the Ukraine was not unexpected. However today the EU foreign ministers will meet to discuss sanctions to be placed on Russia. The extent to which these sanctions are perceived to be damaging to Russia, the EU and ultimately global growth will determine the level of risk that investors are willing to take. The punitive the sanctions increases the likelihood of a Russian reaction, whatever that may be. Any escalation of tensions would lead to a flight to safety and impact on forex trading.

Asian markets were mixed overnight, with Chinese stocks slightly higher, but the Japanese Nikkei 225 slightly lower. Perhaps it is a case of sell on rumour and buy on fact, but the European markets are forecast to open slightly higher this morning. So far reaction on the forex markets during Asian trading has been fairly circumspect, with currency pairs largely trading sideways.

The announcement of the final reading of February Eurozone inflation at 10:00GMT could drive the Euro today. The only real piece of data out of the US comes with the Empire State  Manufacturing data at 12:30GMT.

Chart of the Day – EUR/JPY

The sharp correction on Thursday has not managed to change the outlook for Euro/Yen. The decline has spent the past two days consolidating and appears to have formed an uptrend that dates back to early February. Also, interestingly, an old pivot level around 140.30 has also held up too. The daily RSI has just unwound to 50 and the shorter moving averages are still rising and supportive. The intraday hourly chart shows that there are some higher lows now in place and resistance at 141.50 is being tested. A move through the resistance would complete a small base pattern. However, the overnight supports at 140.85 and more importantly 140.61 need to hold for any thoughts of a recovery to continue. Intraday momentum indicators continue to improve, although the hourly MACD suggests there is still some way to go before this recovery can be really be trusted. A sustained move above 141.50 would certainly be a start today.

EURJPY   17032014

EUR/USD

Amid the initial reaction for the Euro to the result of the referendum in Crimea has been one of circumspect consolidation, something which can also be used to describe the daily chart over the past few days. A consolidation pattern is building above support at $1.3832 in a manner which is allowing the bullish technical indicators to unwind. The intraday chart could be masking something a touch more concerning now for the Euro. For now the consolidation has resulted in momentum and moving averages to become increasingly neutral. However the support at $1.3832 is becoming increasingly important as it protects what could be the completion of a large head and shoulders top pattern. For now this is just a possibility but a breach of the initial support at $1.3871 would increase the pressure. A move above Friday’s high at $1.3936 would defer this outlook.

EURUSD   17032014

GBP/USD

Cable is becoming ever more neutral and hard to call on direction. The price action over the last few days has been devoid of much inspiration and aside from Thursday’s whip-saw day the price has barely moved. Tis suggests that traders are increasingly unwilling to go out on a limb with uncertainty over Russia and the Ukraine still high. There is very little to be gleamed from intraday or daily momentum signals so we can only really talk about support and resistance. A move above the overnight high at $1.6648 would re-open Thursday’s high at $1.6716. However a breach of Friday’s low at $1.6584 would open the key reaction low at $1.6566. Traders may look to wait until after news of any economic sanctions placed on Russia or even Tuesday’s US inflation data before taking a view.

GBPUSD   17032014

USD/JPY

With the low at 101.17 acting as a floor overnight there has been some support come in for the dollar. This is pulling Dollar/Yen higher with Friday’s resistance at 101.87 now the next text. Whilst momentum indicators are merely unwinding a bearish configuration, the recovery is progressing and a successful test of 101.87 would quickly improve the outlook for a move towards 102.38 again. With a series of higher lows in place overnight a pullback below 101.40 would now be disappointing and would put the pressure back on 101.17 again.

USDJPY   17032014

Gold

The bull recovery in the gold price continues and is now within striking distance of $1400. The immediate reaction when markets re-opened after the weekend break was to once again push higher. The technical indicators are all in bullish configuration and any minor corrections or bouts of consolidation are being consistently bought into. The support band $1378.89/$1373.25 would be considered to be a good entry are now. Expect a retest of the overnight high at $1391.76. The daily chart shows slight resistance at $1416.00 but there the next real resistance is not until the key August 2013 high at $1433.31. The intraday hourly chart shows that there would need to be a breach of the support at $1367.56 for the bullish outlook to be challenged.

Gold   17032014

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