Ukraine Developments Benefit Safe Havens Ahead Of Key Eurozone Data

The escalation of the crisis in Ukraine was probably the most important development for foreign exchange markets, overshadowing data like the upward revision of US economic growth and some mixed data out of Japan.

There were reports that around 1,000 Russian soldiers had entered Ukraine, while around 20,000 Russian troops were amassed near the Russia-Ukraine border. The fighting in Ukraine has spread to previously peaceful areas, as the pro-Russian rebels try to open new fronts to divert the attention of the Ukrainian army.

Still, this development did not scare the markets much and stocks merely posted modest losses. The euro remained under pressure, as escalation of the conflict in Ukraine could hurt the European economy, making it more likely that the ECB will inject additional stimulus. Government bond yields have fallen to record lows across Europe in anticipation of such stimulus.

Data out later today, including Eurozone flash inflation for August and unemployment for July, could prove pivotal ahead of the ECB meeting next week. If inflation in particular misses expectations, the euro could attempt to break the 1.3151 11-month low. It was trading around 1.3170 near the end of the Asian session.

In Japan, a string of economic data presented a mixed picture. Inflation came in line with expectations at 3.4% year-on-year, while unemployment ticked up to 3.8%, ahead of expectations of a 3.7% print. Industrial production missed expectations but retail sales surpassed forecasts. The yen remained well bid however around 103.70 against the dollar as it might have benefited from its safe haven status.

In the United States, the Fed’s favorite inflation gauge, the Personal Consumption Expenditure price deflator will come out later today, but things may become quiet after that as Monday is Labor Day holiday for the world’s largest economy.

EUR/CHF downward channel

EUR/CHF is making new lows, reaching 1.2047, the lowest since December 2012. The downtrend remains intact as the pair continues to decline within the downward channel.

Prices are below the daily Ichimoku cloud and the tenkan-sen and kijun-sen lines are negatively aligned, highlighting the bearish market structure.
RSI is in bearish territory although oversold, as is the stochastic, warning of a pause in the downtrend.

A break below Thursday’s low of 1.2047 would accelerate losses to 1.2027, the November 2012 low. Resistance stands at 1.2114, a level tested a few times in August.

Note the 1.2000 level is extremely important as it is a floor that was put in place by the Swiss National Bank in September 2011.