AUD/USD: 0.8930EUR/USD: 1.3730The dollar and the Yen have been the beneficiaries of the political tensions in the currency markets today, while elsewhere, commodities are higher while equities suffered, particularly in Europe. Conditions will remain very nervous and headlines/soundbites from Russia/Ukraine are going to dominate trade. Australia will get the RBA I/R decision, although it may pass pretty much unnoticed, as no change is expected. There is little economic data out elsewhere, apart from the UK Construction PMI and all eyes will remain on Mr Putin's games.
The dollar has made some mild gains today, following on from Friday’s losses, but despite what is going on in Russia/Ukraine the Euro has been mostly confined to a 50 point range until a dip late in the session to a low of 1.3725, where it currently sits.
Mario Draghi was speaking today and weighed on the Euro by stating that 'the longer inflation stays down, the greater the risk it won't go back to 2%" - implying that growth prospect remain low.
Also helping the dollar was the strong ISM Manufacturing reading of 53.2 (exp 52.0) as did the increase in U.S. personal income and spending in January, despite recent run of very cold weather.
Earlier in the day, the market had bigger fish to fry than the EU manufacturing PMI’s and took no notice at all. They came in a bit mixed, but mostly close to expectations with the overall EU number being slightly better than expected (53.2 agst 53.00), while Germany was also solid (54.8) but Italy and France lagged.
It was all about Russia though where the central bank raised rates to 7% (from 5.5%) in order to fight off the weakness in the Ruble which fell to an all time low against the dollar. If the situation escalates, the Euro could yet be in serious trouble given that Ukrainian foreign debt exposure is about EUR 100 billion, most of which is loaned from European banks.
Technically, although the Euro is a bit weaker, the picture so far remains pretty much unchanged.
Today’s session high has been 1.3792 and looks unlikely to be revisited in the short term. Above here, the strong resistance at 1.3825/30, where the important Fibo (61.8% of 61.8% of 1.4939/1.2042) and descending trend resistance, going back to 2008, remains intact and will not be easily overcome. Depending on what is happening in the Ukraine, - if the ECB refrain from easing rates on Thursday, and then we get another soft reading from the NFP on Friday, - the Euro could put this under severe pressure. Above 1.3830, the next target would be 1.3892 (27 Dec high) and then 1.3950 (50% of 1.6037/1.1876/ Monthly cloud top). If we get above 1.4000, then don’t sand in the way, as I do not see a lot to stop it heading to the Oct 2011 high of 1.4246, which is also 76.4% of 61.8% of 1.4939/1.2042.
On the downside, below the 1.3725 session low would probably want to take a look at 1.3700. Below there would potentially head back to last week’s 1.3643 base and then to 1.3610 (61.8% of 1.3475/1.3824) but this currently looks rather unlikely while the uncertainty continues. If weapons are used, expect it to get there very quickly.
Note that the DXY (Dollar Index), having broken important long term support (see w/e report), has now regained it and currently sits back above 80.00, at 80.08. False break? We shall see. The indicators - both daily and weekly - are non committal.
There is no data out today of any importance and the focus remains firmly on Russia. Stay flexible.
Economic data highlights will include:
EU PPI
Jim LanglandsFX Charts www.fxcharts.com.au
