Wall Street endured another struggle into the close last night as tensions in Ukraine continue to drag on markets. Trading in the Asian session was mixed with geopolitical concerns making for a choppy day for equities. Japanese inflation data overnight was broadly in line with expectations with an increase to 1.6% (from 1.5% last month). Overnight in a move that will heighten concerns over the financial impact of the conflict in eastern Ukraine, ratings agency S&P has put its outlook for Russia on negative watch for a possible downgrade. European markets have opened with slight losses in early trading.
Forex trading has also continued to be fairly choppy, with a lack of any really decisive moves anywhere amongst the majors, although the Aussie and Kiwi dollars could be muted today due to both countries being public holiday for ANZAC Day. Despite Mario Draghi’s attempts yesterday to once more jawbone the Euro lower, the single currency is trading only a few pips below where it was when he began his dovish speech yesterday.
Traders have only UK Retail Sales at 09:30BST and the revised University of Michigan Consumer Sentiment at 14:55BST to focus on.
Chart of the Day – S&P 500
The last two days of negative candlesticks give me cause for concern that a correction may be on the horizon once more. The two negative sessions have come on the back of six consecutive positive candles, while the momentum indicators beginning to roll over are also concerning. The index is only 19 points (c. 1%) away from another all-time high but I am not sure that this will be seen imminently. The hourly intraday chart suggests that the key near term low is at 1870 and with the hourly momentum indicators in corrective configuration, this would suggest a near term loss of impetus and a retest of yesterday’s low. A move below the support at 1863 would breach a reaction low signal a move back into the support band 1840/1850. A move above yesterday’s high at 1883 would re-open the upside.
The outlook for the Euro has continued on a broadly positive path over the last few days. However the daily momentum indicators are not showing the improvement that the bulls would have hoped, with MACD lines flat and little real advance in the RSI. The spikey moves that came during yesterday’s US session have done little to change the overall outlook which, on the hourly intraday chart continues to make slow gains where corrections are being bought into. The immediate low to watch for is now at $1.3820, but the spike low (following yesterday’s positive durable goods data) of $1.3790 is now the key low. The advancing intraday moving averages and positive hourly momentum indicators suggest that $1.3854 will be tested in due course. However it must be noted that the intraday picture is very messy after yesterday’s price action and this is clouding the conviction.
We are still none the wiser for how the near term outlook is shaping up for Cable. The 81 pip trading range that has formed is now into its 7th day as the consolidation and low volatility continues. Daily momentum indicators are positive but have lost any of the impetus previous had. The intraday chart suggests that in the past couple of days the bulls have looked to regain some sort of control, holding higher lows and reacting positively to a spike lower from yesterday. There is a very slight upside bias within the trading band, however the rate is once more in the middle of the 81 pip range. With very little conviction in its trading Cable is a very difficult call at the moment.
The sequence of higher lows that had been in place now looks to be turning around and leaving a sequence of lower highs, whilst the negative candlesticks on the daily chart are growing. This increases the likelihood of a resumption of the dollar weakness/yen strength that has put downside pressure on Dollar/Yen in April. The intraday spike high yesterday at 102.64 was just shy of 102.69 and 102.72 for the previous two days, whilst another attempted rally has fallen over at 102.50 overnight. The intraday hourly moving averages are firmly camped in negative configuration which suggests that rallies are being used as chances to sell. As with other pairs, Dollar/Yen is quite a messy near term chart but there is a slight downside bias that has formed over the past few days which suggests that yesterday’s low at 102.07 will be tested in due course.
Fundamental news flow can have a big impact on charts in the near term and that is exactly what seems to have happened for gold. The tensions in eastern Ukraine seem to growing by the day now but news of Russia engaging new military exercises near the Ukrainian border caused a spike in gold. This came after a sharp move lower amid the dollar strength following the better than expected durable goods orders. All in all a spikey day which has left us with a bullish key one day reversal for gold. Tat this has come on geopolitical news flow concerns me as to how sustainable this move is, but we will have to stick close to the news for that. There is obviously a key low in place at $1268.24, but I would watch the now rising 55 hour moving average on the intraday chart (currently $1286.28) as the near term gauge. Immediate resistance is at $1297.90 and the pivot level around $1300 also remains intact.