The Ukrainian situation is causing some risk aversion although it is not the kind of risk aversion we are used to. For starters, the dollar remains very weak despite being considered a safe-haven and the Yen is rallying against it as are most other pairs for that matter. We have seen some considerable strength in CHF though aided by a bullish Euro and the reduced expectations of action from this week's ECB meeting. Market distortions like this never really last and soon enough we will see either a reduction in risk aversion to bring the CHF and JPY lower, or a strengthening of the dollar, which remains at the bottom of it’s range and quite oversold. We also have bullish RSI divergence for the USD% index so the outlook is really quite complex currently.
The Russian parliament have unanimously backed action in the Crimea region so commodities are rallying with oil and gold both higher. Foreign ministers will hold an emergency meeting on Monday to discus the potential Russian invasion of Crimea, with the US already clear on their stance, they want Russia out of the Ukraine.
Later in the week, Thursday will be critical as will Friday in terms of data. with numerous central bank rate decisions and then NFP on the Friday. Could be a bumpy week.
Monday Mar 3
2:00pm EUR ECB President Draghi Speaks
3:00pm USD ISM Manufacturing PMI
Tuesaday Mar 4
3:30am AUD Cash Rate
3:30am AUD RBA Rate Statement
8:00am EUR Spanish Unemployment Change
9:30am GBP Construction PMI
Wednesday Mar 5
12:30am AUD GDP q/q
8:15am EUR Spanish Services PMI
8:45am EUR Italian Services PMI
9:30am GBP Services PMI
10:00am EUR Retail Sales m/m
1:15pm USD ADP Non-Farm Employment Change
3:00pm USD ISM Non-Manufacturing PMI
Thursday Mar 6
12:00am USD FOMC Member Fisher Speaks
12:30am AUD Retail Sales m/m
11:00am EUR German Factory Orders m/m
12:00pm GBP Asset Purchase Facility Official Bank Rate
Tentative GBP MPC Rate Statement
12:45pm EUR Minimum Bid Rate
1:15pm USD FOMC Member Dudley Speaks
1:30pm EUR ECB Press Conference
1:30pm USD Unemployment Claims
1:30pm USD Revised Nonfarm Productivity q/q
3:00pm USD Factory Orders m/m
6:00pm USD FOMC Member Plosser Speaks
10:30pm AUD RBA Gov Stevens Speaks
Friday Mar 7
11:00am EUR German Industrial Production m/m
1:30pm USD Non-Farm Employment Change
1:30pm USD Unemployment Rate
5:00pm USD FOMC Member Dudley Speaks
If you have any questions of comments then feel free to tweet me @LFXMark
USD% Index
The dollar situation is very complex right now. COT suggests a broad weakening of the dollar against most currencies once again but as mentioned this is at odds with the theme of risk aversion as a result of the Ukrainian situation. There has been an escalation in the conflict since last Tuesday too so the COT may not be entirely an accurate picture of market sentiment this week, rather is shows the sentiment for the last few weeks as bearish USD. Technically we are also overdue a bounce with bullish RSI divergence and technical support holding for now. Momentum remains firmly to the downside though irrespective of the situation in the Ukraine, mostly due to the bullishness of the Euro as a result of a reduction in rate cut hopes finding Euro buyers even in this chaos. The correlation with the very strong Swiss Franc may also be helping there to weaken the dollar. We will have to wait and see which of these conflicting themes survives in the long run. I am bullish USD.
USD% Index Resistance (EUR/USD support): EUR/USD 1.3767, 1.3715, 1.3700
USD% Index Support (EUR/USD support): EUR/USD 1.3800, 1.3850
EUR% Index
Risk aversion saw the Euro weaken at the interbank level before most retail brokerages were up and going for the week so there was a reasonably large gap to the downside for the index following last weeks shock increase in Euro inflation giving the ECB a bit more elbow room to carry on as they are without further stimulus. I’m not sure quite what they have left in the arsenal anyway, I’ll call their bluff on their threats of a negative deposit rate while Germany are in the driving seat and as such their hands seem somewhat tied. Germany would also fight hard against QE so it seems all that is left is tough-talk from Draghi. They have been known to ignore market sentiment and do some shock policy changes though so perhaps we shouldn’t be too cocky about it. Monday saw mostly poor European data which has not helped the Euro bulls much, but neither have we seen large-scale profit taking to bring us significantly lower, so clearly we need to wait for further guidance before progressing. I am slightly bearish EUR.
EUR% Index Resistance: EUR/USD 1.3850, 1.3875
EUR% Index Support: EUR/USD 1.3777, 1.3744, 1.3624
JPY% Index
Risk aversion now has stronger JPY resistance in it’s sights so perhaps we will test the major trend line channel top shown as the bearish thick white trend line now that the long standing narrow range has been broken to the upside. Depending on the Russia/Ukraine situation this strong resistance level may act as a great entry for Bearish JPY continuation, with the Japanese monetary policy still extremely loose against a normalisation of US policy. I am bullish JPY% until 100.31.
JPY% Index Resistance (USD/JPY Support): USD/JPY 101.00, 100.60, 100.31
JPY% Index Support (USD/JPY Resistance): USD/JPY 101.60, 102.50
GBP% Index
We’ve popped higher and still look bullish with the pound likely to remain quite well supported in the face of possible dollar strength. The upside seems limited also though so this could be another week of stalemate in that respect. COT showed broad support for the pound last week which backs our suggestion of a lack of downside away from these high levels and the status of GBP as a risk currency may be downgraded slightly in the absence of safer options allowing it a more neutral status during these risk averse times. I am neutral GBP.
GBP% Index Resistance: GBP/USD 1.6765, 1.6700, 1.6860
GBP% Index Support: GBP/USD 1.6720, 1.6550
AUD% Index
Risk aversion has pushed the Australian dollar through channel support and a possible return to sanity for the Aussie could be on the cards. If we see some political resolution from the Ukraine though this may act as a catalyst for bargain hunting Aussie bulls (including myself) who are willing to buy Aussie in the face of terrible fundamentals at the moment as a function again of the lack of belief that the RBA will implement further policy action to bring the Aussie lower. While we have risk aversion though, we have a risk event laden week with numerous data points that could come out be poorly and drive us lower. Aussie traders only seem to pay attention to poor Aussie data when it suits market sentiment so we could see a return to correlation between data and price for the time being. I am bearish AUD.
AUD% Index Resistance: AUD/USD 0.8950, 0.8980
AUD% Index Support: AUD/USD 0.8880, 0.8850, 0.8800
CHF% Index
The Swiss Franc seems to be the favourite choice for risk aversion at the moment but it’s days are perhaps numbered. We are fast approaching the highly guarded floor set out by the SNB in EUR/CHF so there may be further rumblings and threats to throw unlimited amounts of money at this to prevent a breach of the floor. The incredible ability of the Swiss to pull this off last time the floor was challenged may also act in their favour with traders likely to place thier own long orders around the 1.2000 figure for EUR/CHF if we get close which will in turn may bolster the support. It would take very deep pockets to stop hunt that level but a breach there would likely be quite spectacular. I am neutral / bullish CHF.
CHF% Index Resistance (USD/CHF support): USD/CHF 0.8795, 0.8728
CHF% Index Support (USD/CHF resistance): USD/CHF 0.8820, 0.8850, 0.8900
LittlefishFX Relative Currency Index Strength
All of the currency indexes used for this analysis are available as a NinjaTrader indicator from the link below. They are eight indexes, USD, EUR, JPY, GBP, AUD, CHF, CAD and NZD with each index made up of the remaining seven pairs, weighted in accordance with the distribution of global FX volume as measured by the Bank of International Settlements in their Triennial Survey.