Ukraine Vote Weighs On Markets

by Phil Moore August 7, 2014

Markets ended the week in ‘risk aversion’ mode with the outcome of the Crimean referendum vote due to take place this weekend weighing heavily on market sentiment.

The stand-off this week between the West and Russia over the Ukraine hit stocks heavily over the course of the week. Key indices such as the DOW and S&P500 retreated from recent highs while Gold pushed higher towards the $1400 per ounce barrier.

This week we see significant potential for volatility in the market. Both the risking geopolitical tensions and fundamental data could spark further risk aversion in the markets, of which the dollar could prove to be a key beneficiary.

Janet Yellen makes her first address to the markets as the head of the Central Bank at the FOMC rate decision on Wednesday. While markets broadly expect the current path of taper continue, there is the potential for signs of the timing of a rate hike to surprise markets. This together with the geopolitical landscape could start to push a revival in the fortunes off the dollar.

Elsewhere the British Pound will be in focus with both the Claimant Count Change and Retail Sales figures up for release this week. Sterling certainly looks to have ‘topped’ out at present following a recent strong run of gains. However data from the UK has been known to surprise of late so we could see another run higher if more evidence is gathered to support a near term rate rise.

Focus turns to the Canadian dollar at the weekend with Core CPI and Retails Sales figures due for release on Friday. The USD/CAD looks to be consolidating and preparing for its next move following an extended period of strong gains.

Key News This Week

Forex

EUR/USD – The EUR/USD continued to move higher, ending the week just off highs at 1.3911. While fundamental risk remains, the technical outlook points to the potential for additional gains this week. Look for a break of 1.3968 (May 2011 low) to spark further gains above 1.4000.

USD/JPY – After moving higher at the beginning of the week the pair fell away to end at 101.33. If a bounce is going to occur it should do so from this level. A move lower here opens up further falls to the rising trend line from June 2013. This currently sits at 100.30.

USD/CHF – Bouncing twice last week from 0.8700 USD/CHF ended the week at 0.8720. The pair continues to move lower, sitting along the top of the descending trend line which has controlled price action from May 2013. Continue to look lower watching for a break of 0.8700 to accelerate falls.

GBP/USD – Cable ended the week down but closed off of lows to finish at 1.6650. The outlook still remains broadly bullish although we respect the ‘topping’ out scenario that appears to be playing out on the chart. Below 1.6580 would indicate that the broader uptrend has come to an end.

Major Indices

DOW – The Dow ended the week at 16065 following a significant sell off over the course of the week. Ending at lows, we are expecting further weakness in this market, although the 16000 level should offer some support. Look lower to 15800.

NASDAQ – Like most major markets last week, the NASDAQ gave up some recent gains. The Index ended the week at a low of 4245. Further pullback is now expected. 4200 offers the first notable downside level of interest while plenty of strong support exists at 4100 if needed.

FTSE – The Index opened, moved higher and then fell heavily over the week ending at 6532. Support this week starts at 6500 with several levels of support sitting lower down between 6380 and 6440. Look for a bounce around these levels.

Commodities

Oil – The Crude price got hammered this week due to global tensions, falling back below $100 to end the week at $98.99 per barrel. Expected upcoming volatility this week would lead us to sidestep this market. Out outlook is bearish with $97.00 offering first support.

Gold – We were looking for a close above $1350 which we got last week. Gold ended the week on a high at $1382. The outlook remains bullish, in particular, noting the risk fundamentals this week. Look for a break and close above $1450 to accelerate gains.