·
The dollar traded unchanged or higher against
all of its G10 counterparts during the European morning Monday in the absence
of any material economic events. It was higher against NOK, NZD, CAD, GBP, SEK
and AUD, in that order, while it remained unchanged against EUR, JPY and CHF.
·
Once again, investors increased their demand
for safe-haven assets due to heightened geopolitical risks in Ukraine,
following last Thursday’s downing of the Malaysia Airlines plane. Britain,
Germany and France agreed on Sunday that they should be ready to announce a new
round of sanctions on Russia at the European foreign ministers meeting in
Brussels on Tuesday.
·
Oil was the main winner during the European
morning session. It moved again above 103.00, confirming the rebound from the
102.60 support zone. I still expect the price to challenge the area of 103.90.
Similarly, gold rallied from its opening level this morning to trade around
1310, just below where it jumped to after last Thursday’s tragedy.
·
On the other hand, stock markets declined
across Europe over news that Ukrainian government forces were trying to break
into the rebel-held city of Donetsk and fears that tensions between Russia and
the West may rise. All the above supports my view that we are likely back to a
“risk-off” world.
·
NOK is the G10 currency that tends to
depreciate most when European stock markets decline. On the other hand, the yen
tends to gain during periods of risk aversion. Putting the two together,
selling NOK/JPY would seem to be an effective way from a fundamental view to
play the Ukraine crisis through the FX market.
·
However,
the technical picture for NOK/JPY may
be limited. The pair declined as expected during the
European morning Monday, after finding resistance at 16.420 (R1), near the
upper boundary of the near-term downside channel. A clear dip below the support
of 16.250 (S1), would confirm a forthcoming lower low and is likely to target
the next obstacle at 16.180 (S2), or the lower bound of the downtrend channel.
Both our momentum studies support the notion, since the RSI fell below its 50
level, while the MACD, already within its negative field, seems ready to move
below its signal line. As long as the rate is trading within the aforementioned
channel and below both the moving averages, I see a negative near-term outlook.
Nevertheless, although the short-term trend is to the downside, the rate is
approaching a longer-term upside support line (drawn from back 24th
of June 2013 and connecting the lows on the daily chart). This leads to the
conclusion that any further downside could be limited near that line.
Additionally, I can see positive divergence between our daily momentum
indicators and the price action, while the 14-day RSI exited its oversold
field, corroborating my view that any further declines are likely to be
limited.
·
Support:
16.250 (S1), 16.180 (S2), 16.000 (S3)
·
Resistance:
16.420 (R1), 16.525 (R2), 16.610 (R3)
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