The DAX bounces off the weekly 200 EMA, AUDJPY finds weekly resistance
Usually when the AUDJPY is rising the global equity markets are bullish too. What we have seen of late is the proximity of the war in Ukraine to Germany has pushed investors out of the region’s riskier assets and into the safe-havens. At these lows, the DAX under normal circumstances would be a buy, so hopefully, this is a signal that the world gets some peace from the Russian/Ukraine negotiations today.
Market Brief
Day 8 of the Russian invasion into Ukraine and the aggressors take their first major city. "There were armed visitors in the city executive committee today," Kherson Mayor Igor Kolykhayev said in a statement. "My team and I are peaceful people - we had no weapons and there was no aggression from our side... I didn't make any promises to them... I just asked them not to shoot people."
The fact that there is a land grab as the majority of the developed world denounces the Russian action and applies multiple sanctions doesn’t seem to deter Russian President Putin.
"Russia is increasingly an economic island....Nothing is off the table in terms of future sanctions," U.S. Treasury Secretary Janet Yellen said.
News headlines will again drive markets today as high-level negotiations between Russia and Ukraine are due to take place. The European Central Bank's meeting minutes will also be released. Powell is also scheduled to deliver his second day of testimony. Hopefully, he won't add anything new to yesterday's remarks. Several major European countries will release final PMI data on services this morning, along with data on the jobless rate in Europe.
In the same vein as yesterday, I expect the EURUSD to continue to decline. Powell's remarks had the opposite effect that I was hoping for and reinforced the Hawkish sentiment of the euro traders after the higher than expected European inflation data. The price action left a double bottom which I have highlighted as this is a target for traders. I am just waiting for another break of market structure to show that the traders are ready to go lower. The Asia-Pac session and London open was very quiet.
The ActivTrader sentiment indicator shows traders on the platform have the belief the EURUSD is travelling higher, so may be when the double bottom is swept this cohort may switch or get stopped out.
The forex heatmap is mixed with a slight bias towards risk-on, as the commodity pairs are generally bullish, and the yen and US dollar are currently more bearish.
With Russian oil being stored, oil prices are pushing towards $120-$125 per barrel. In the event of a Russian oil cut off, governments may be forced to release additional SPR or change their oil policies. Russia supplies approximately 10% of the world's oil supply. At these oil prices, US Frackers could ramp up production, however, history shows that whenever oil prices get too high, a recession follows. For traders chasing price is never the best policy but waiting for a pull back into the moving averages could be a strategy to follow this trend.
The German DAX along with the US Russell 2000 have indicated which way equities were heading these last couple of months, so it is interesting to see the DAX reach for the weekly 200-period moving average to look for support. If the price action were to overshoot and pass the 13040 level, this correction would be into a real bear market mode. Bear markets last for years and become a slow grinding depression, so anything which can be done to get a bounce and back to new all-time highs would be appreciated and following on from March 2020 obviously doable, should the governments really want to. For traders we need to follow the trend but expect ripping bear market rallies from obvious support levels like the 200-period EMA or from historical market structure.
The AUDJPY is also at a key level of resistance.
Price action has been pushed along with this bullish trend on the higher time frames. In the morning, traders were unable to break through the 84.67 level, which was a previous weekly low and a resistance level I would anticipate they would be taking profits at. At these prices, joining the bull trend is foolish, so patience is required to either wait for a pullback into the moving averages on a higher time frame like the daily chart or to wait for a breakout of the October 2021 high and see if we get a retest there for a continuation higher. For me, the AUDJPY is a decent risk-on/risk-off indicator, and since it seems determined to keep going higher during this period of geopolitical unrest, I feel comfortable buying stocks for a short bounce. In the event that the AUDJPY rolls over, I expect the US and major indices to fall as well.