Mid-Day Report: Sentiments Weaker as Russia Would Face Tougher Sanctions, Forex Steady

European equities are broadly lower today as markets are awaiting tomorrow’s meeting between EU foreign ministers, where discussions on additional sanctions on Russia would be held. Russia is already facing sanctions over annexation of Crimea. It’s been suggested that the missile that shot down the Malaysia Airlines flight over east Ukraine was provided by Russia. UK,, France and Germany warned Russian president Putin to establish a safe environment to recover bodies and investigate the crash, or Russia will face harder sanctions. Nonetheless, it’s also reported that there were divisions over the breadth and severity of the sanctions. US stock futures also point to a mildly lower open, where DOW could have a test on 17000 handle again.

The forex markets are relatively steady today. Dollar weakened as the we started by has reversed earlier loss. The dollar index dipped to 80.42 and is now back above 80.50. Near term outlook stays cautiously bullish with 80.36 support intact. The rebound from 79.74 is expected extending higher to test trend line resistance at around 80.9. But still, it should noted again that the index is staying in range trading that started at 79.00. The zone between the trend line and 81.48 could provide strong resistance to the dollar index. Hence, we’d be cautious on how the index reacts after it hits the trend line.

Released today, UK Rightmove house price dropped -0.8% mom in July, down from June’s 0.1% mom. German PPI was flat 0.0% mom and dropped -0.7% yoy in June. For the coming week, the BOE minutes due July 23 would unveil the rationale for maintaining the Bank rate at 0.5% and the size of the asset purchase program at 375B pound, despite rising inflation and pickup in economic growth. The RBNZ meeting on July 24 would likely announce another rate hike of 25 bps to 3.5%. On the dataflow, the US, Japan and Australia would release inflation data for June/2Q14. In China, the preliminary manufacturing PMI by HSBC would probably show a modest rise to 51.9 in July from 51.5 a month ago. Here are some highlights:

  • Tuesday: UK public sector net borrowing; US CPI, existing home sales
  • Wednesday: Australia CPI; BoE minutes; Canada retail sales
  • Thursday: RBNZ rate decision; Japan trade balance, PMI manufacturing, China HSBC PMI manufacturing; Eurozone PMIs; UK retail sales; US jobless claims, new home sales
  • Friday: Japan CPI; German Gfk consumer sentiment, Ifo business climate; UK GDP; US durables

Daily Pivots: (S1) 0.8966; (P) 0.8985; (R1) 0.9000; More….

Outlook in USD/CHF is unchanged. Overall, we’re favoring the bullish case that pull back from 0.9036 has completed at 0.8855 already. As long as 0.8958 support holds, further rally is expected to 0.9036. Break there will resume whole rise from 0.8702 and target 0.9156 key resistance next. Though, below 0.8985 will mix up the near term outlook and turn focus back to 0.8897 support instead.

In the bigger picture, price actions from 0.9971 are still viewed as a correction pattern. Decline from 0.9838 is seen as the third leg. As long as 0.9156 resistance holds, deeper fall would still be seen to 50% retracement of 0.7065 to 0.9971 at 0.8518 and below. We’d start to look for reversal signal below 0.8518 again. Meanwhile, note that medium term downside momentum has been diminishing as seen in weekly MACD. Break of 0.9156 will argue that such correction pattern is completed and will turn outlook bullish for a test on 0.9971.

USD/CHF 4 Hours Chart

USD/CHF Daily Chart

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