We’re watching Russia slowly march or roll through Ukraine, and currently, they are targeting Europe’s largest nuclear power station. Convoys are still approaching the capital city and the West is imposing sanctions and trying to squeeze the financial stability out of Russia. This much uncertainty is not anything new to the markets, but wars are unpredictable and the markets are having to price in the worst base-case scenario, as high-level talks are not getting anywhere fast.
In Ukraine, the situation is getting worse as any hope of a resolution gets further away with no sign of either side getting what they want after the second round of talks. The global equities during the Asia-Pac session slumped on news of a fire breaking out at a Ukrainian nuclear plant. Thankfully the fire was at the perimeter and no critical infrastructure was damaged but the fighting to capture the nuclear plant at Zaporizhia is another worrying development. A the time of writing the Nikkei 225, Hang Seng and DAX are -2.23%, -2.88% and -2.16% respectively lower. The DAX is trading below the weekly 200-period EMA and is closing in on a 20% drop from the highs which investors view as a bear market rather than just a correction.
Usually, on the first Friday of the month, the markets are slow whilst we wait for the US session and the non-farm payrolls. The EURUSD has already dropped more than 50 pips at the London open and could be heading to the 1.0900 level which is the 24th May 2020 resistance high. This is accelerating lower as flows into the US dollar increase and we move closer to the Fed's rate hike.
Gold is still catching a bid due to the uncertainty in the markets and the VIX is maintaining its elevated levels above 30, indicating volatility is likely to push ranges further. The significant high in gold printed on the 24th of February and since then we have been trading within a $100 range. $1950 is currently a ceiling but this level has been tested twice, so I am expecting to see a push for a liquidity grab at least and maybe a test of the 78.6% Fibonacci retracement level. EMAs are still pointing up on multiple time frames, and price action typically follows the prevailing momentum so with the volatility we could be testing above the significant high and into the $1980 levels.
The forex heatmap is mixed with no clear direction at the London open but we have the euro as the weakest currency again and the Antipodean commodity pairs doing the best. Australian retail sales this morning came in as expected. The Ukraine crisis is pushing the euro lower and this morning’s German trade balance or retail sales data out of Europe is not going to turn the tide.
The ActivTrader sentiment indicator shows that 85% of traders on the platform would like t to see the USDJPY go lower. Due to the global reserve status of the dollar plus a growing demand for this safe-haven it is unlikely we see any USD crosses go against the greenback.
This morning’s price action started off weaker for the USDJPY and it tested the highs from 3 days ago, filling the gap within the imbalance from 2nd March.
I am now looking for a reversal off the M30 chart and the 200-period EMA which is currently sitting around 115.35.
The initial target would be 115.60 but depending on the market reaction I think this has a good chance of going much higher today and I will be targeting the liquidity above the daily highs that have rejected the 116.40 price level and subsequently created a double top chart pattern.