Despite weekend events in Russia, European markets proved to themselves to be reasonably resilient yesterday, finishing the day mixed even as the DAX and FTSE 100 sank to multi-week lows before recovering. US markets didn’t fare much better, with the Nasdaq 100 sliding sharply, while the Russell 2000 finished the day higher.
While equity markets struggled to make gains there wasn’t any sign of an obvious move into traditional haven assets, which would indicate that investors had significant concerns about what might come next. If anything, given how events have played out over the last few years, and the challenges that have faced global investors, the view appears to be let’s worry about what comes next when and if it happens, rather than worrying about what might happen in what is becoming an increasingly fluid geopolitical situation.
Bond markets appeared sanguine, as did bullion markets with gold finishing modestly higher, while the US dollar finished the day slightly lower, ahead of the start of this week’s ECB central bank forum in Sintra, Portugal, which starts today.
Oil prices found themselves edging higher yesterday, largely due to uncertainty over the weekend events in Russia given its position as a key oil and gas producer. The prospect that we might see supply disruptions if the geopolitical situation deteriorates further may have prompted some precautionary buying. While the crisis appears to have passed quickly, the fact that it happened at all has been a bit of a wakeup call and raised some concerns about future long-term political stability inside Russia.
One other reason for the so far muted reaction to recent events is that we are coming to the end of the month, as well as the first half of the year, with investors indulging in portfolio tweaking rather than any significant shift in asset allocation. With H2 fast approaching the key decisions are likely to involve determining how many more rate rise decisions will come our way, and whether we can avoid the prospect of a recession in the US.
As far as the UK is concerned, it's going to be difficult to see how we can avoid one, having just about avoided the prospect at the end of last year, while the EU is already in one. The US continues to stand out, although even here there is evidence that the economy is starting to slow.
On the data front there isn’t much in the way of numbers before the back end of the week and various inflation numbers from Germany, France and the EU, as well as the US. Today we have the latest US durable goods numbers for May, as well as housing data for April and May, which are expected to show signs of softening, and consumer confidence numbers for June. Consumer confidence has been one area which has proved to be resilient, edging up in May to 102.3. This is expected to continue in June to 103.90 in a trend that appears to be matching the resilience of the labour market.
EUR/USD – not much in the way of price movement yesterday, with resistance back at last week’s high just above the 1.1000 level, with the main resistance at the April highs at 1.1095. This remains the next target while above the 50-day SMA at 1.0870/80 which is acting as support. Below 1.0850 signals a move towards 1.0780.
GBP/USD – quiet session yesterday but still holding above the lows of last week, and support at the 1.2680/90 area. Below 1.2670 could see a move towards the 50-day SMA. Still on course for a move towards the 1.3000 area but needs to clear 1.2850.
EUR/GBP – struggling for momentum currently having failed at the 0.8630/40 area last week. The main support is at last week’s low at the 0.8515/20 area. A move through 0.8640 could see a move towards 0.8680. While below the 0.8630 area the bias remains for a return to the recent lows.
USD/JPY – while above the 142.50 area, the risk is for a move towards 145.00. This support area which was the 61.8% retracement of the 151.95/127.20 down move, needs to hold or risk a return to the 140.20/30 area. as it looks to close in on the 145.00 area. This now becomes support, with further support at 140.20/30.