18/03/2014: Putin set to turn up the pressure cooker after luke-warm sanctions cheer the markets

Market Overview

Financial markets have breathed a collective sigh of relief as the sanctions that will be imposed on Russia amount to little more than asset freezes and visa bans on key individuals. However, there are already signs that the situation may be set to escalate once more. Russia has already recognized Crimea as a sovereign state and President Putin is expected to give a speech today (11:00GMT) that paves the way for Crimea to become part of the Russian Federation. The imposed sanctions as they are seem to have done little to deter the Russians so far.

Overnight there was a strong bounce on Wall Street indices, volatility has fallen significantly (the VIX volatility index was 13% lower yesterday) and Asian markets also made gains. European markets look set for cautious early trading, although currency pairs have just begun to come under pressure once more which could impact on forex trading.

European traders will be focusing on this morning’s German ZEW Economic Sentiment at 10:00GMT, with focus also on US CPI inflation at 12:30GMT and a look at the US Building Permits also at 12:30GMT. There will also be one eye on a first chairing of the FOMC by Janet Yellen as the two day meeting begins today.

Chart of the Day – FTSE 100

After 6 straight sessions of decline, the FTSE 100 has finally shown some signs of recovery. A positive bounce yesterday saw the index close above Friday’s high, the first time it had even traded above a previous high in 9 sessions. Momentum indicators on the daily chart are beginning to show some signs of recovery also with a crossover buy signal threatening on the Stochastics. The first test on the upside is the 61.8% Fibonacci retracement of the February rally at 6588. There is also price resistance around 6600 to overcome. The bulls have made a first attempt at a recovery but now they will have to back this up again today. Holding above yesterday’s consistent support around 6550 will be key to any recovery.

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EUR/USD

Yesterday’s improvement in risk appetite has been re-affirmed overnight in Asian trading as the Euro has found support around the old breakout high of $1.3892. Daily technical studies remain very much in positive configuration and the outlook for buying into corrections continues. The slight caveat is the daily RSI remains towards historically stretched levels (it rarely stays for too long in the high 60s before beginning to unwind at least slightly). Intraday hourly moving averages are all rising in bullish sequence, but the European traders have started to sell early in the session. I now see Friday’s low at $1.3877 as the key level to be watching. A breach would take the Euro below all moving averages and resume talk of a head and shoulders top again. For now then I would see any correction into support around $1.3892 as a chance to buy.

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GBP/USD

Another day, another failed attempt to break the sideways trading habit. As technical indicators on the daily chart become increasingly neutral yesterday was another session with a below average daily range of just 64 pips. An attempted upside break failed at $1.6665, to drag Cable back into the range $1.6600 and $1.6640 where it has spent much of the past week. Even on the hourly chart the technical indicators have now flat-lined, with moving averages, RSI and MACD lines apparently in need of resuscitation. Perhaps today we can hope for some action, with the US CPI inflation figure at 12:30GMT. Yesterday’s low is under immediate pressure as the European traders put pressure on Cable early I the session. A move under $1.6601 would open $1.6584 and $1.6566. The key resistance is yesterday’s high at $1.6665.

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USD/JPY

The yen weakened yesterday in line with the general improvement in risk appetite. This move saw Dollar/Yen firming up the key low at 101.17 to avert the selling pressure for now and maintain a rangebound trading phase. However, although the recovery broke above the resistance at 101.87 overnight, the European session has begun with a bout of downside pressure once more. This could now become a concern as the hourly momentum indicators are rolling over again, possibly now with renewed downside potential. The rate will need to maintain a position above the reaction low at 101.50 to prevent the outlook turning near term bearish again. Whilst this support remains intact, the immediate picture is uncertain therefore and the bulls will still be looking for a break back above the overnight peak at 101.95 which would open 102.38.

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Gold

As investor risk appetite has improved in the past 24 hours, the insurance trade that has driven gold higher has been reversing. This has now thrown up the first negative signal on the daily gold chart for a while with a bearish key one day reversal. Coming with the daily RSI above 70 has put a corrective look to the chart, and could see a pullback within the uptrend since December which currently comes in at $1325. The rising 21 day moving average (currently $1342) has provided support throughout the recovery, while the top of a band of support comes in at $1355.80. Any correction is therefore seen as a minor blip within the recovery. The intraday hourly chart shows the support around $1354.80 may already be kicking in, while the hourly MACD and RSI are beginning to bottom out. Above $1367.80 would be a buy signal now.

Gold   18032014

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