Ukraine tensions could see a bounce in gold

Four key markets in focus today.

Spot gold

There’s a good chance we get a bounce in gold, as traders hedge against geo-political risks stemming from increased tensions in the Ukraine. The chances of civil war in Ukraine seem to have increased and the authorities in the Ukraine have given pro-Russian separatists until 15:00 AEST to lay down arms. An emergency UN meeting has been called (expected to start at 10:00 AEST) and hopefully the meeting can help find a solution to the tensions, however the prospect of traders buying gold to hedge against any risks are high. Resistance is seen at $1321 (the 38.2% retracement of the March to April sell-off) and a close above here could see gold trade to $1350.

EUR/USD

After a strong run up on Friday to test the 1.3900 level, we’ve seen good selling coming into the pair this morning. There has been a whole host of ECB members over the last 48 hours talking about the EUR’s strength, notably Mario Draghi, who on Saturday re-iterated his view that a ‘strengthening of the exchange rate requires further monetary stimulus, that is important for our price stability’. An article in the Wall Street Journal laid down the steps the central bank could use to counter the EUR’s strength, including negative deposit rates. Whether this narrative pushes the EUR down materially is debatable, however it should keep EUR/USD from rallying too far from the top of the recent high of 1.3966.

Citigroup (C)

Citigroup looks bearish on the daily charts, having broken below the series of February and March lows around $46.19 to $46.13. On Friday we did see buying coming into the stock as it approached $45.00, but the close below the recent lows suggest further downside could be on the cards. Citigroup report Q1 earnings pre-market today and after JP Morgan’s disappointing earnings on Friday, the market has priced in an element of disappointment in this name too. Consensus is for adjusted EPS of $1.14, on revenue of $19.4 billion. Net interest margins are expected to fall two basis points to 2.86%.

Japan 225 (Nikkei)

Traders are pointing to the weekly chart of the Japan 225 and highlighting the risks of a more protracted move. In US trade (22:30 AEST) we get US retail sales and USD bulls will be hoping for a good number here (market expects a reasonable gain of 0.9%), which in turn could have positive ramifications on the Japan 225. Technically the index is oversold and could rebound a touch, however the head and shoulders pattern (which has been building since September) has now completed last week. The target for this pattern would be around 11,500. I will be looking for traders to sell rallies to 14150.

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