24/03/2014: Traders start the week on the back foot as Russia and China weigh on sentiment once more

Market Overview

Traders continue to be focused on the Ukraine as the political sanctions on Russia begin to take effect. Equity markets are set for weakness on Monday, while the sentiment could also impact on forex trading as recent bout of dollar strength is also showing signs of continuing. The Asian session was remarkably resilient considering the disappointing close on Wall Street and tensions in Crimea remained elevated over the weekend. Japanese equities have played catch-up after the public holiday on Friday, and closed 1.8% higher, helped by a slightly weaker yen. The Chinese HSBC flash PMI fell again this month to 48.1, below the previous 48.5 and a miss of expectations too. Despite the Chinese data, Asian markets have held up, possibly on the prospect that the data may encourage the China to inject further stimulus.

The European traders appear to be less positive. The European flash manufacturing PMIs are out early this morning and could drive sentiment. Aside from the European manufacturing surveys, there is little to drive investors today other than Markit’s US Preliminary PMI at 13.45GMT.

Chart of the Day – EUR/GBP

The recovery for the Euro above £0.8350 completed a base pattern on the daily chart which implied gains towards £0.8450. However the recovery has come under some consolidation since the move. Hitting a high at £0.8400, the rate has traded in quite a tight 76 pip range. The rate is currently trading in the middle of this range, but dips continue to be bought into and the upside pressure is growing. Daily momentum indicators are in bullish configuration, although drifting back slightly as the consolidation has taken hold. The last two sessions has seen the Euro begin to strengthen once more and another move towards £0.8400 can be expected. Both the intraday and daily charts have a slight upside bias which suggests that the break should be to the upside in due course.

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EUR/USD

Last week saw the breakdown of the 6 week uptrend on the daily chart which suggests that the medium term bulls will have to fight to regain the ascendency. There is now a series of barriers to gains on the daily chart just above the $1.3800 level to hold back any recovery. The rising 21 day moving average which had supported the Euro through the uptrend could now act as resistance around $1.3814, whilst there is also the underside of the former uptrend today at $1.3823 and the neckline resistance of the top pattern at $1.3832. The intraday hourly chart also shows Thursday’s high at $1.3844. A slow drift with a very slight upside bias has taken over since Thursday but the overhead pressure suggests that rallies will be sold into and the recent low at $1.3748 retested before a move towards $1.3700.

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GBP/USD

The correction continues to put pressure on the medium to longer term positive outlook as the uptrend in place since August 2013 is increasingly being tested. Cable has settled into a slow drift lower in recent sessions and the overnight trading in Asia gives little reason to suggest this will not continue. The intraday hourly technical indicators are all in bearish configuration and Cable continues to leave a series of lower highs. Friday’s high at $1.6520 is now a good basis of resistance leaving a band of resistance between there and the rally high at $1.6568 as a sell-zone for any unwinding rally. Expect a retest of the overnight low at $1.6459, however with little real support on the daily chart until the key low at $1.6250, the downside potential for a further pullback is there.

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USD/JPY

In recent weeks, the chart of Dollar/Yen has tended to build a series of trading ranges within ranges, as it has struggled to find overall direction. The backend of last week saw a breach above 101.95, but that has since acted as the basis of support for the next range as the dollar has traded below 102.68. The Asian session has seen a slight yen weakening which has taken the rate back towards the upper limit of the range which could be a chance to play the range once more. The resistance around 102.83 looks to once more be acting as a pivot level. With momentum indicators on the daily chart extremely neutral and little guidance either on the intraday hourly studies, we must play the range until otherwise.

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Gold

The gold bulls will be disappointed that they could not make more of the recovery that threatened on Friday. The daily chart shows that the key uptrend since December remains intact but is under pressure. The support of Friday’s low at $1320.24 remains intact however, the Asian session has seen a continuation of a drift lower and the support could come under threat. The support at $1329.61 remains key as it protects from further downside possibly towards $1300. It looks increasingly as though the coming days could be key to the medium term prospects of the gold price recovery. A move above $1337.40 would be encouraging, with the key intraday resistance being Friday’s rally high at $1342.43.

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