Daily Report: Risk Aversions Back on Ukraine Tension

Tensions over the situation in Ukraine sent US equities lower overnight as DJIA and SP 500 extended recent decline. DJIA lost -139.81 pts, or -0.84% to close at 16429.47 while SP 500 lost -18.78 pts, or -0.97% to close at 1920.21. Both took out last week’s low. Weakness in risk sentiments carried on in Asia and dragged down major indices. Dollar index, on the other hand, extended recent rally and reached as high as 81.62, taking out last week’s high, and is now trading firmly above 81.5. It’s reported that Russian president Putin ordered Kremlin to prepare retaliatory measures against US and Europe on the sanctions imposed on Russia last week. Meanwhile, Foreign ministry said that eastern Ukraine is now on the verge of a “humanitarian catastrophe” as it would push for an international mission to help civilians flee the fighting. Meanwhile, it’s reported that Russia massed forces on the border in the biggest military buildup since May.

New Zealand dollar also weakened today with additional pressure from employment data. Unemployment rate dropped to 5.6% in Q2 versus expectation of 5.8%, hitting lowest level in over 5 years. However, that was mainly due to a drop in the participation rate to 68.9%, down from 69.3% in Q1. Employment growth slowed to 0.4% qoq, missed expectation of 0.7% qoq, down from prior quarter’s 0.9% qoq growth. RBNZ signaled last month that it will pause the tightening cycle and the employment data affirmed such stance.

NZD/USD extended the fall from 0.8835 medium term top to as low as 0.8422 so far today. Near term outlook stays bearish for further decline. However, consider oversold condition in daily RSI, and the pair is now pressing 55 weeks EMA (now at 0.8426). We’d expect some support from 0.8401 cluster support (38.2% retracement of 0.7682 to 0.8835 at 0.8395) to near term bottoming and consolidations. Touching of 0.8533 resistance will bring recovery.

Looking ahead, UK production data will be a main focus in European session. Swiss will release CPI. Eurozone will release retail PMI, German factory orders and Italian GDP. In US session, Canada and US will release trade balance.

Daily Pivots: (S1) 1.0917; (P) 1.0946; (R1) 1.0990; More

USD/CAD’s rally from 1.0620 resumed after brief consolidations and breached 1.0960 resistance. As noted before, the corrective decline from 1.1278 has completed at 1.0620 ahead of 1.0608 key cluster support and long term trend line. Rise from there should now extend back to retest 1.1278 high. On the downside, below 1.0903 support will indicate short term topping and bring consolidations. But downside should be contained well above 1.0793 resistance turned support and bring rally resumption.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
Unemployment Rate Q2
5.60%
5.80%
6.00%
5.90%
22:45
NZD
Employment Change Q/Q Q2
0.40%
0.70%
0.90%

23:01
GBP
BRC Shop Price Index Y/Y Jul
-1.90%

-1.80%

5:00
JPY
Leading Index Jun P

105.5
104.8

6:00
EUR
German Factory Orders M/M Jun

0.50%
-1.70%

7:15
CHF
CPI M/M Jul

-0.40%
-0.10%

7:15
CHF
CPI Y/Y Jul

0.00%
0.00%

8:10
EUR
Eurozone Retail PMI Jul

50

8:30
GBP
Industrial Production M/M Jun

0.60%
-0.70%

8:30
GBP
Industrial Production Y/Y Jun

1.50%
2.30%

8:30
GBP
Manufacturing Production M/M Jun

0.60%
-1.30%

8:30
GBP
Manufacturing Production Y/Y Jun

2.10%
3.70%

9:00
EUR
Italian GDP Q/Q Q2 P

0.10%
-0.10%

12:30
CAD
International Merchandise Trade (CAD) Jun

-0.1B
-0.15B

12:30
USD
Trade Balance Jun

-44.2B
-$44.4B

14:00
GBP
NIESR GDP Estimate Jul

0.90%

14:30
USD
Crude Oil Inventories

-3.7M

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