19 March 2014 The Big Picture · Is it over already? The politicians may not think so, but as far as the markets are concerned, the crisis in Ukraine is effectively over. Russian President Putin yesterday signed the accession treaty to allow Crimea to join Russia, but he also said that Russia did not intend to move into other regions of Ukraine, stating “we dont want division of Ukraine.” At the same time, Ukrainian officials tried to defuse the situation, saying they wanted to build “good neighbour relations” with Russia and pledging that Ukraine would not join NATO, a move that would be seen as highly provocative in Moscow. · The market apparently assumes that the clash between Ukraine and Russia has now reached an equilibrium and the affair is effectively over, with the worst-case scenario avoided. Stocks in Europe and the US rallied (Russian stocks were up another 4% or so), VIX back to where it was before the crisis began, and gold fell. USD made a new 2014 low against SEK, NZD and AUD. Personally, I would wait until Friday after the EU leaders’ meeting to see exactly what the final reaction of the Europeans is going to be, although so far they have not shown much stomach for a major fight. The G7 meeting next week may also take some action. The other as-yet unknown is what kind of response, if any, Moscow will make to the sanctions that the West put on it, although the sanctions announced so far are so toothless that they may not bother responding. I have a hard time believing that something that upsets the world political order like this can end so quickly and with so little disruption, but perhaps I’m just pessimistic. · The big loser of the day was the CAD, which fell after Bank of Canada Gov. Poloz said he can’t rule out an interest-rate cut if the economy worsens. He also said Q1 growth may be a bit softer than forecast because of the harsh weather. If we are indeed back to normal, CAD may be the new currency to sell, so long as there are no more tremors out of China to disturb AUD. JPY could return to its previous weakening trend. · Today it is a big day for normal macro-economic events, which are likely to take center stage unless there are some surprises from Ukraine. The UK budget is due to be announce by Chancellor Osborne. He will announce new growth and deficit forecasts and outline tax changes and spending initiatives. The existing forecasts by the Office for Budget Responsibility (OBR) are not so out of line with market forecasts and so there is not likely to be a major revision to the forecasts. As for fiscal policy, the next Budget after this one will be a few months before the next election, so the government may want to put in place some new policies that will help it at the polls. However, I can’t see a major change in direction away from the fiscal austerity that has been the major thrust of their policy up to now, so I would expect any popular reductions in taxes to be largely offset elsewhere in the budget. The Bank of England releases the minutes from its latest meeting. At the same, the UK unemployment rate is forecast to have remained unchanged at 7.2% in January, while the Jobless claims for February are expected to fall by 25.0k after a 27.6k decline in January. · In the US, the FOMC ends its two-day meeting. As we mentioned yesterday, the focus is expected to be on any changes in the phrasing of their forward guidance as the tapering of asset purchases is likely to be maintained at its current steady pace. The Fed will probably discard its 6.5% unemployment threshold and adopt qualitative guidance for signaling when it will consider raising the Fed Funds rate. Fed Chair Yellen will hold her first press conference as Chair following the FOMC decision and the release of economic projections earlier in the day. · Besides Yellen, we have five more speakers scheduled on Wednesday. During the Asian morning, Bank of Japan Governor Haruhiko Kuroda speaks on a panel at the International Financial Symposium and the Bank of Japan Board Member Takahide Kiuchi speaks at a meeting with business leaders. The Bank of Japan Board Member Takehiro Sato speaks at the Japan Society on Recent Developments in Japans Economy and Monetary Policy. During the European day, the Riksbank Governor Stefan Ingves speaks on financial stability and the Swiss National Bank President Thomas Jordan speaks on a panel. EUR/USD · EUR/USD remained between the 1.3893 (S1) support and the resistance of 1.3965 (R1). A clear break above that bar may trigger bullish extensions towards the next hurdle at 1.4000 (R2). The structure of higher highs and higher lows remains in progress and since the rate is trading within the upward sloping channel, I still consider the short-term picture to be positive. Nonetheless, the negative divergence between the MACD and the price action remains in effect, thus the possibility for a pullback in the near future still exists. · Support: 1.3893 (S1), 1.3850 (S2), 1.3810 (S3). · Resistance: 1.3965 (R1), 1.4000 (R2), 1.4200 (R3). USD/JPY · USD/JPY found resistance at the 101.85 (R1) bar and moved lower to meet once again support at the low of 101.25 (S1). A dip below that hurdle may target the next support at 100.75 (S2), where a break will probably extend the move towards 100.00 (S3). Nonetheless, the RSI exited its oversold territory and is pointing up, while the MACD, although in its bearish territory, lies above its trigger line, thus I would expect the forthcoming wave to be to the upside, maybe for another test near the 101.85 (R1) resistance. · Support: 101.25 (S1), 100.75 (S2), 100.00 (S3) · Resistance: 101.85 (R1), 102.25 (R2), 102.70 (R3). EUR/GBP · EUR/GBP moved higher and found resistance at 0.8400 (R1), slightly above the 38.2% retracement level of the 1st Aug. - 17th Feb. downtrend. I expect the price to meet strong resistance near that area and since negative divergence is identified between the RSI and the price action, a downward corrective wave is possible. However, as long as the rate is trading above the prior downtrend line and above both the moving averages, the overall short-term outlook remains positive, for now. · Support: 0.8340 (S1), 0.8300 (S2), 0.8260 (S3). · Resistance: 0.8400 (R1), 0.8460 (R2), 0.8535 (R3). Gold · Gold moved in a consolidative mode, remaining slightly above the support level of 1354 (S1). The MACD, already below its trigger line, obtained a negative sign indicating bearish momentum. On the daily chart, the daily RSI exited overbought conditions, while the daily MACD crossed below its signal line, favoring further declines. However, as long as the low of 1332 (S2) holds I would consider any possible downward wave as a retracement. · Support: 1354 (S1), 1332 (S2), 1310 (S3). · Resistance: 1392 (R1), 1415 (R2), 1435 (R3) Oil · WTI moved higher after failing to overcome the strong support area near the 98.00 (S1) hurdle, which coincides with the 50% retracement of the 9th Jan. – 3rd Mar. uptrend. The price violated the upper boundary of the downward sloping channel. A clear break above the 200-period moving average, followed by a break above 100.75 (R1) may confirm that the 3rd-18th decline was just a 50% retracement of the prevailing uptrend. Moreover, positive divergence is identified between our momentum indicators and the price action, while the MACD is approaching its zero line, where a break will confirm the recent positive momentum. · Support: 98.00 (S1), 96.50 (S2), 95.00 (S3) · Resistance: 100.75 (R1), 103.00 (R2), 105.00 (R3).
Posted on: Wed, 19 Mar 2014 06:55:46 +0000