Market Overview
Investor sentiment has settled once more into a more cautious mode as the market tries to work out the implication of President Putin offering “humanitarian” aid to Ukraine. For what it is worth, I feel that Putin has proved repeatedly during the process that he cannot be trusted and if he can get troops into Ukraine under the banner of being there on a humanitarian mission, he would take that opportunity.
However, for now markets seem to be fairly relaxed, with the VIX falling back below 15 and the lost since late July, Wall Street closed slightly higher with the S&P 500 posting gains of around 0.3%, but Asian markets were more cautious and were broadly mixed into the close. European markets are also very cautious as traders prepare for another day light on economic data.
Although equity markets may be cautious, forex trading is fairly decisive today, with the US dollar posting gains across the major currencies. The prospects of a euro rally seem to be on the backburner for now.
Traders once more have a rather quiet day ahead for economic announcements, however the Eurozone will be focusing on how the German ZEW Economic Sentiment survey (10:00BST) performs. Expectation is for a deterioration from 27.1 last month down to 17.0.
Chart of the Day – USD/CHF
I have been talking about a technical rally on Euro/Dollar building over the past few days, but an early signal could be seen on the chart of Dollar/Swiss. The performance of the two European currencies have been closely tied and although the chart configuration means that the charts are opposite, what pushes EUR/USD higher will pull USD/CHF lower.
On USD/CHF there is a consolidation pattern building and this is coming as the momentum indicators begin to show some sell signals. There is not the divergence on the RSI that is seen with EUR/USD, but the MACD lines are crossing and the Stochastics are in decline now. There is no confirmed sell signal yet (would probably need a close below the support at 0.9035), as the dollar has found some support in the past couple of days, which has dragged the price above the hourly moving averages.
However, for now the consolidation continues but the early warning signs are there on the momentum indicators. The resistance comes in at 0.9100 and the recent peak at 0.9115.
EUR/USD
The price action from yesterday shows that there is resistance to a rally for the euro. However, an inside day suggests a day of consolidation rather than anything more destructive to the prospects for a technical bounce. The bullish divergence on the RSI and crossover buy signal of the Stochastics continue to point towards a reversal in progress.
The intraday hourly chart shows that the support band around $1.3380 has now given way as a slight drift lower is forming once more. The price has fallen back below the rising hourly moving averages and this is a disappointment for the prospects of a rally but it seems as though if it is going to come, it could be a slow process of building.
This may mean a series of arguably false signals before ultimately the bounce sets in. There is near term support in the band $1.3330/$1.3350 that the bulls will want to hang on to. The recovery would be confirmed on a break above $1.3440.
GBP/USD
Despite a day of consolidation yesterday, the selling pressure seems to be resuming once again today as Cable has dropped to a new two month low and moves ever closer to a test of the support at $1.6737 and more importantly the key May low at $1.6690. There is very little to be positive about on Cable at the moment, with all momentum indicators in bearish configuration and signs of an impending recovery are negligible.
The downtrend resistance today comes in at $1.6820. Still the only crumb of comfort is that the RSI is below 30 and this could ultimately mean a loss of downside potential. However, there is little else for the bulls to cling on to now.
The intraday hourly chart looks even worse, with all hourly moving averages falling in bearish sequence and the momentum indicators in bearish configuration. If the technicals control this morning’s price action, then with the hourly RSI now also below 30 there could be some near term consolidation.
However, the resistance does not really come in until $1.6815. Selling any rallies remains the way to play Cable.
USD/JPY
After the volatility that dominated last week, the slow grind of the dollar bulls is returning once more. The last 36 hours has been fairly calm and generally over the course of the last few weeks, when this is seen, the price of Dollar/Yen will tend to drift higher.
It will be interesting to see if the resistance around 102.30 will play any role as a pivot level, but a break above it should open the way towards 102.80 and a retest of the July high just under 103.10. There is little that can be reliably obtained from the daily momentum indicators, although there is the slightest hint of an upside bias in a largely neutral configuration.
The intraday hourly chart shows that a break above 102.45 would be a hurdle overcome by the bulls. There is support once more around 102.00 and below at 101.50.
Gold
The price is once more gradually drifting backwards as the geopolitical tensions in Ukraine have begun to settle in the past couple of days. This is leaving traders with a very neutral outlook as momentum indicators take on a benign look to them. Trading above the daily moving averages gives a slightly positive skew, as does trading above the psychological $1300 barrier.
However, the intraday hourly chart shows a possible near term top formation that would complete on a move below $1301.75, however support at $1305 seems to be holding for now.
The drift is also meaning that the reaction high at $1322.60 is now strengthening as a basis of resistance and comes just under the key $1324.44 rally high. Gold remains a difficult play from a near to medium term perspective.