CFD Markets News and Forecasts — 01-03-2022

• WTI consolidates the biggest daily jump since May 2020.
• API stockpiles marked surprise draw of 6.5 million barrels for the week ended on February 25.
• Russia-Ukraine jitters intensify despite global pressure on Moscow, OPEC+ is likely to respect current plans, may ignore geopolitical challenges.
• EIA data, Fed Chair Powell’s Testimony will also keep oil traders busy.

WTI crude oil buyers take a breather around $104.00 during Wednesday’s initial Asian session, following a whopping rally of more than 10% the previous day.

The black gold earlier cheered hopes of no major relief to WTI traders from global producers despite the ongoing Russia-Ukraine crisis.  On the same line were private inventory numbers and macros suggesting further tensions emanating from Moscow.

As per the latest weekly industry stockpile data from the American Petroleum Institute (API), US crude stocks fell by 6.1 million barrels, versus the previous addition of 5.983 million barrels.

Elsewhere, the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a grouping known as OPEC+, is likely to stick to its existing policy of increasing output by 400K barrels per day (BPD) each month in April, per Reuters. The news quotes the reason as, “Russia's invasion of Ukraine having not affected OPEC+ deal functioning so far.”

Talking about geopolitics, Russian President Vladimir Putin has already conveyed his wish to continue with the military march in Kyiv until his goal is met. At the latest, the International Monetary Fund (IMF) and World Bank (WB) mentioned, “War in Ukraine creating significant spillover effects in other countries, commodity prices rising, risk driving further fueling inflation.” On the same line, US Treasury Secretary Janet Yellen also said, “The G7 continues to support the removal of key Russian financial companies from SWIFT. Additionally, prepared remarks for US President Joe Biden’s State of the Union (SOTU) speech also signaled that Biden emphasized self-reliance to tame inflation while also criticizing the Russian invasion of Ukraine.

Moving on, the OPEC+ verdict and Ukraine-Russia headlines are the main catalysts for the WTI crude oil prices moving on. Additionally, Fed Chair Jerome Powell’s bi-annual testimony and weekly official oil inventory data from the US Energy Information Administration (EIA), 2.796M expected and 4.515M prior, will be important as well.

Technical analysis

Although overbought RSI hints at a pullback towards the $100.00 threshold, WTI crude oil bulls can keep the June 2014 peak of $107.45 on the radar.

“US Treasury Secretary Janet Yellen said on Tuesday the Group of Seven nations would convene a task force to focus on freezing and seizing assets of Russian elites,” per Reuters.

More to come

• NZD/USD retreats from one-week high, stays positive for the fourth consecutive week.
• International pressure on Russia intensifies as Moscow gets tough on Kyiv, peace talks in focus.
• Wall Street, US Treasury yields portrayed risk-off mood, benefiting the DXY.
• Second-tier NZ data came in downbeat, eyes on Aussie GDP, statements from US President Biden, Fed Chair Powell.

NZD/USD remains depressed around 0.6750 during the early Wednesday morning in Asia, following a sluggish start to March.

The kiwi pair refreshed weekly top the previous day but closed in the red territory as the Russia-Ukraine crisis intensifies. However, upbeat data from China and receding calls of the Fed’s 0.50% rate hike in March seem to defend the pair buyers.

Russian President Vladimir Putin has already conveyed his wish to continue with the military march in Kyiv until his goal is met. To defend the national interest, Ukraine rushes to get European Union (EU) membership but the casualties keep rising each day.

Recently, the International Monetary Fund (IMF) and World Bank (WB) mentioned, “War in Ukraine creating significant spillover effects in other countries, commodity prices rising, risk driving further fueling inflation.” On the same line, US Treasury Secretary Janet Yellen also said, “The G7 continues to support the removal of key Russian financial companies from SWIFT.

Elsewhere, probabilities over the US Federal Reserve’s (Fed) 0.50% rate hike in March, as per CME’s FedWatch Tool, dropped to 1.7% versus above 50% before a few weeks. The same weigh on the US Treasury yields, down 12 basis points (bps) to 1.71% by the end of Tuesday’s North American session.

It’s worth noting that the Wall Street marked losses to portray the risk-off mood but the market’s rush to risk-safety favored the US Dollar Index (DXY) and gold prices. Additionally, fears to energy supply propelled WTI crude oil prices by over 10% on Tuesday to $106.33 at the latest.

Talking about the data, PMIs from China and the US were upbeat while New Zealand’s Terms of Trade Index for Q4 dropped to -1.0% versus -0.8% expected and 0.7% prior. Further, New Zealand Building Permits for January slumped to -9.2% compared to 0.5% forecasts and 0.6% previous readouts.

Looking forward, US President Joe Biden's State Of The Union (SOTU) speech, around 02:00 GMT, will precede Fed Chair Jerome Powell’s bi-annual testimony to entertain traders. However, major attention will be given to geopolitics. As per the prepared speech, US President Biden emphasized self-reliance to tame inflation while also criticizing the Russian invasion of Ukraine.

Technical analysis

NZD/USD pullback remains elusive beyond the previous resistance line from November 15, 2021, around 0.6740 by the press time. Until then, the kiwi pair can keep February’s high and the 100-DMA, respectively around 0.6810 and 0.6850, on their radar.

• AUD/USD bulls stay in charge and eye commodities for direction. 
• Ukraine crisis bears down on currencies elsewhere with economies that depend on Russian fuel. 

AUD/USD was the strongest performer on Tuesday despite its common correlation to the beta of the stock markets which sold off as attacks on Ukrainian cities intensified. Fixed income rallied across the curve yet, unusually, the price of the Aussie remained resilient. AUD/USD stuck to a 0.7238/89 range while by comparison, the ranges elsewhere in EUR/USD, for instance, were far greater (1.1233 to 1.1089 the low).

''The market is aggressively scaling back expectations for Fed tightening as the Dec-23 Fed Funds Futures contract rallied 25bp,'' analysts at ANZ bank explained, giving the US a run for its money, although not preventing it from soaring in a risk-off setting.

''Markets are bracing for a drawn-out conflict and appear to be focusing more on the negative growth implications than inflation risks. Expectations of a 50bp rise in fed funds this month have faded and investors are flocking to the safe haven of US Treasuries amid deteriorating liquidity.''

This has enabled the commodity currencies to hold up relative to those of, say, Europe which has a higher dependency on all things Russian. The heavy sanctions there and the result of the economic damage from Russia's invasion of Ukraine mean that traders believe the European Central Bank will delay hiking interest rates until next year.

''Europe remains highly exposed to Russia in some sectors, particularly energy,'' analysts at TD Securities explained. ''As the West rushes to sanction Russia, Europe is likely to feel the hit the hardest. This poses a typical stagflationary shock, and growth is likely to be lower, and inflation higher, than otherwise.''

Oil prices surged overnight despite the IEA announcing member countries (including the US) have agreed to release 60mbbl from reserves. This gave a lift to commodities overall. This potentially leaves the Aussie in good stead which is proving resilient as high commodity prices and strength in the domestic economy provides a buffer against geopolitical tensions. 

Australia as a net energy exporter is set to gain from higher commodity prices, with liquefied natural gas and coal up sharply, while wheat, nickel, aluminium and iron ore are all firm. Meanwhile, the Reserve Bank of Australia (RBA) kept interest rates steady at 0.1% after a monthly policy meeting.

Traders have pushed out the first hike to July from June and removed one rate rise from this year to imply four increases to 1.0% by Christmas. However, analysts at Rabobank argue that, in their view, ''commodity exports offer the Australia economy good insulation and should provide support to the AUD/USD. ''

Q4 GDP rebound expected today

''We expect Australian fourth-quarter Gross Domestic Product today to show a bounce of +3.6% QoQ, with household consumption the key driver of strength'' analysts at ANZ Bank said.

''Annual GDP growth is forecast to edge up to 4.2% from 3.9% in Q3. A rise of 3.6% is not as strong as the RBA’s expectation for a 4½% gain in Q4. There’s more uncertainty than usual, in these estimates, evident in the wide range of market forecasts.''

• On the hourly chart, GBP/CAD is moving in on the 61.8% golden ratio.
• A break below 1.6900 opens risk to the 1.6830s daily target.

GBP/CAD pierced the 2022 lows (1.6948) on Tuesday but has corrected back above them to post a corrective New York session high of 1.69774. From both a daily and shorter-term perspective the bias is tilted to the downside as illustrated in the following top-down analysis:

GBP/CAD weekly & daily charts

The weekly chart shows that the price has already mitigated an imbalance of the daily drop as follows:

Last week's candle shows that the price rallied to 1.71035. Therefore, the path of least resistance could now be to the downside on a break of 1.6897 with eyes to 1.6835.

GBP/CAD H1 chart

On the hourly chart, the price is reaching up into the 61.8% golden ratio territory. Should this hold as resistance, then the focus will be on the downside for a test and break of the lows for the sessions ahead. A break below 1.69 the figure opens risk to the 1.6830s daily target as illustrated above. 

• The USD/JPY is extending losses in the week, so far down 0.62%.
• Russia-Ukraine war concerns dampen the market mood,  lifting safe-haven peers.
• USD/JPY Technical Outlook: Upward biased, though a daily close below 114.40 could shift the pair to neutral.

The USD/JPY is under pressure for the second day in a row amid the market’s angst over Russia-Ukraine war tussles. Furthermore, the 10-year T-note closely correlated to the USD/JPY pair plunges 14 basis points (bps), sitting at 1.692%. That said, the USD/JPY is trading at 114.84 at press time.

Geopolitical tensions keep the market sentiment depressed. In the FX space, safe-haven peers rise, while risk-sensitive currencies, as of late, pared early gains, and others record losses.

USD/JPY Price Forecast: Technical outlook

Tuesday’s Asian Pacific session witnessed an upward move of 40-pips, recording March 1 daily high at 115.28, some pips above the daily pivot point. However, it appeared to be a profit-taking move, resuming its downward trend caused by Russia-Ukraine war headlines, recording a daily low at 114.69.

The USD/JPY is upward biased, as depicted by the daily moving averages (DMAs) located above the exchange rate. However, a daily close under 114.40 could shift the pair to neutral.

The USD/JPY first support would be February 24 low at 114.40. A sustained break could pave the way for further losses, with the 114.00 mark as the second support. Once cleared, the next stop would be January 24 daily low at 113.47.

Upwards, the USD/JPY first supply zone would be the 50-day moving average at 114.97. Breach of the latter would expose February 25 at 115.76, followed by the YTD high at 116.35.

Bank of England Monetary Policy Committee member Michael Saunders said on Tuesday that it isn't clear whether recent developments in Ukraine will have any effect on inflation two to three years out. However, if the large energy price rises as a result of Russia's invasion of Ukraine are maintained, this would add to the inflation peak. Saunders said that he does not want to be drawn now on the monetary policy implications of the war in Ukraine. 

The Bak of England Catherine Mann said that UK inflation is headed to 7.25% in April.

She voted for a 50 basis point rise in interest rates this month because she saw little sign of an easing in the public's price expectations, which risk causing inflation to stay too high for too long.

Mann was one of four Monetary Policy Committee members to vote to raise interest rates to 0.75% from 0.25% this month, rather than the increase to 0.5% backed by the majority of the committee.

Key comments

Companies and workers will both get 5% wage increases in 2022.

 5% wage rise expectation show `embedded' inflation.

More comments to come...

Cleveland Fed President and FOMC member Lorreta Mester on Tuesday said that the Ukraine situation adds upside risks to inflation and downside risks to the Fed's growth forecasts. The challenge for t 

The Bank of England's Michael Saunders says vote for a 50bp hike in February ''does not necessarily imply that I believe that the level of rates one or two years ahead will be higher than the yield curve used for the February MPR.''

He says important to distinguish between the pace of tightening and the level of rates at the end of a tightening cycle.

More key comments

Says quicker tightening early on could help limit the overall tightening cycle

Says vote for a 50bp hike in February does not necessarily imply that I would vote for a 50bp hike in the event that further tightening is required.

Says case for policy to move in a larger step probably is greater when bank rate is clearly further away from the approximate level that, if maintained, would return inflation to target.

Says not in favour of aiming to restore the lost potential output by “running the economy hot".

Saunders says running the economy hot” would simply produce an even more persistent inflation overshoot.

Says maintaining a relatively loose policy stance under current conditions would be likely to produce a further undesirable rise in inflation expectations.

Says such an outcome would be costly to reverse and could limit the scope for prompt monetary easing the next time the economy needs support.

GBP/USD update

Cable is offered on the back of a risk-off theme in markets on Tuesday. The comments from Saunders, however, is serving to stall the slide with the price a touch higher as it starts to correct from the session lows of 1.3298.  The price is now near 1.3310. 

• WTI surged into the $104.00s on Tuesday, up sharply from Monday’s close in the $95.00s.
• The 2014 high in the $107.50 area has for now acted as a barrier to further upside.
• The historic intra-day rally has been driven by traders pricing in a greater risk of Russia oil supply disruption.

Oil prices have been surging on Tuesday as traders come to the realisation that financial sanctions on Russia are likely to have ramifications on the country’s ability to export energy products, even if Western sanctions don’t directly target Russian energy. Front-month WTI futures are currently on course for a historic one-day rally of just under $9.0 (or over 9%), with prices currently trading in the mid-$104.00s, up from Monday’s closing levels in the $95.00s.

That takes WTI’s on-the-week rally to just shy of $13.00. In recent trade, prices have pulled back quite aggressively from earlier peaks. WTI nearly challenged 2014 highs in the $107.50 area and at one point did eclipse $107, though profit-taking ahead of this key area of resistance took some wind out of the day’s rally. Once (if) this level is cleared, that will open the door to a test of the 2013 highs in the $112 area.

Traders seemed disappointed that major oil-consuming nations agreed to “only” release 60M barrels of oil reserves at Tuesday’s extraordinary International Energy Agency meeting, news which failed to offset bullishness after sources said OPEC+ would stick to its current output policy. Analysts expect the group of oil-producing nations to agree to another 400K barrel per day hike to output quotas in April when they meet later in the week.

Ukraine Defense Intelligence said on Tuesday that there are about 300 Belarussian tanks near the Belarussian/Ukrainian border, Reuters reported on Tuesday. The Russians are preparing a deliberate provocation to justify the entry of Belarussian troops into the conflict, the Ukrainian Intelligence added. 

• The USD/RUB depreciated 44% in the last two days, spurred by the  Russia – Ukraine conflict.
• On Tuesday, the USD/RUB prints a YTD high at 118.09.
• USD/RUB Technical Outlook: It is upward biased, though a negative divergence in the 1-hour chart looms, spurring an opportunity to dip buyers.

The USD/RUB skyrockets for the second straight day, as geopolitical tensions between Russia – Ukraine do not subside, while the USD/RUB reached a YTD high at 118.09. At the time of writing, the USD/RUB is trading at 117.75.

From a technical perspective, it is easy to spot that the USD/RUB is upward biased. The daily moving averages are below the 78.00 mark, and the USD/RUB sits above February 28 daily high at 111.67.

Therefore, it is suggested to approach USD/RUB price action from the 1-hour chart due to the strong uptrend and volatility of the markets. Caution is warranted.

USD/RUB Price Forecast: Technical outlook

USD/RUB 1-hour chart shows that the USD/RUB depreciated 32% in the day on Monday. However, the pair traded in the 96.00-112.08, for some time, before breaking upwards, reaching a new YTD high at 116.76. However, the Relative Strength Index (RSI) is at overbought levels at 74.82, aiming higher, though if the USD/RUB stabilizes around the 112.08-116.76 range, it could print a new lower high, that could portray a negative divergence between price action and RSI. That said, it could spur a move downwards.

If that event plays out, USD/RUB first support would be 108.49. Breach of the latter would expose a downslope trendline, which passes around 105.00, followed by the confluence of the 50-hour simple moving average (SMA) and March 1 daily low at 96.78.

• EUR/USD embarks on a trip to test the lows of 2022. 
• Ukraine's crisis and uncertainty remains in the driving seat.

EUR/USD is in free fall on Tuesday and is encroaching on the 2022 lows near 1.11. The lows of the day have so far have been 1.1107 and the 2022 low printed on Feb.24 was 1 pip below that. The high was 1.1233, so there has been some big movement. ''Traders are increasingly hedging against declines in the euro as they brace for the damage that war in Ukraine could wreak on the European economy,'' a Bloomberg article read today. 

It is risk-off across the board with European stocks tumbling and there was a stampede for US and German government bonds due to the huge uncertainty caused by Russia's invasion of Ukraine. Losses for the pan-European STOXX 600 index sent it down nearly 2% by midsession and Wall Street is also in a sea of red. A majority of major S&P 500 stocks are trading in the red with financials the weakest group. 

US 10-year Treasuries, which are a key driver of global borrowing costs are falling sharply to five-week lows. The 10-year German Bund yield was heading for its biggest one day fall since 2011.

February PMI data showed momentum in eurozone manufacturing growth had already waned slightly last month, although it was still relatively strong and firms said supply chain constraints had eased. With that being said, ''Europe remains highly exposed to Russia in some sectors, particularly energy,'' analysts at TD Securities explained. ''As the West rushes to sanction Russia, Europe is likely to feel the hit the hardest. This poses a typical stagflationary shock, and growth is likely to be lower, and inflation higher, than otherwise.''

The dollar remains firm as the crisis in Ukraine continues with the  DXY index up for the second straight day and trading now well above 97. The high has been 97.425 so far. After there, levels to watch are the June 2020 high near 97.802 and the May 25, 2020, high near 99.975.  This could leave the euro exposed all the way into the 1.0850s. 

EUR/USD technical analysis

This is a snapshot of the weekly chart. As illustrated, there is little to no support all the way to 1.1020 and then plenty of imbalance to mitigate into the 1.08 figure thereafter.

• GBP/USD has slipped under 1.3550, weighed by geopolitics-related safe-haven demand for the US dollar.
• The main risk-off driver on Tuesday remains concerns about the Russo-Ukraine war and how it might impact the global economy.

GBP/USD dropped by about half a percent on Tuesday to back below 1.3350, having rejected a test of recent sessions’ highs in the low 1.3400s earlier in the day. Cable’s fallback from the 1.3430s, which marks the highs of the last three sessions, is not overly surprising amid the much more downbeat market tone on Tuesday (equities lower and yields tumbling) which is underpinning the safe-haven dollar. Sterling is more risk-sensitive than the buck and GBP/USD is thus expected to perform poorly in times of risk-off.

The main driver of risk-off on Tuesday is of course concerns about the Russo-Ukraine war and how it might impact the global economy. Amid anticipation that fighting will intensify as Russia continues to move troops into Ukraine and amid uncertainty about how the harsh financial sanctions implemented by the West against Russia might impact the global economy, investors have been derisking. Notably, expectations for tightening from European central banks has taken a substantial hit on Tuesday.

That has resulted in a substantial fall in UK bond yields (10s down over 20bps, 2s down nearly 20bps). While US yields are also substantially as well (10s down 11bps and 2s down 9bps), rate differentials have in this instance swung in favour of the buck, likely adding to the tailwinds it is experiencing on Tuesday. With traders paring their BoE tightening view, market participants will be closely watching upcoming speeches from BoE Monetary Policy Committee (MPC) members Michael Saunders (at 1830GMT) and Catherine Mann (at 1900GMT).

Beyond some more BoE speak on Wednesday from other MPC members, the most notable calendar events this week are in the US, with Fed Chair Jerome Powell testifying before Congress on Wednesday and Thursday and NFP figures on Friday. As was the case with Tuesday’s strong ISM Manufacturing report that offered some modest support to the US dollar, data this week should point to continued US economic strength.

But these events are set to play second fiddle to broader geopolitical developments. For now, it seems likely that the ceiling just above 1.3400 for GBP/USD will hold firm and, as long as safe-haven dollar demand remains firm, the risks to the pair are tilted to the downside. Some short-term GBP/USD bears may well be eyeing a test of last week’s sub-1.3300 lows.

Money markets are paring their bets for central bank tightening in 2022. The BoE is now seen lifting rates by a further 107bps versus 128bps on Monday. The ECB is now seen lifting rates just 20bps versus 25bps earlier in the day.

European bond markets reflect such sentiment. 2-year German yields are down north of 20bps on Tuesday to back under -0.70% while 2-year UK yields are down around 18bps to under 0.90%. 10-year German yields are also down about 20bps to well back below 0.00% while the UK 10-year yield is down about 22bps to back under 1.20%. 

Russia's invasion of Ukraine and the subsequent harsh sanctions enacted on it by the West have sparked fears of economic weakness as a result of fears of Russian energy and other commodity supply disruptions. This is leading market players to drastically dial back on expectations for central bank tightening in the medium term. 

EUR/USD failed to make much headway past 1.12 and is trading back under the figure. As it is still too early to anticipate a resolution to the Russian invasion, economists at Scotiabank expect the pair to move downward to the 1.10 level.

Resistance after 1.12 is located at 1.1240/50

“The pair has managed to hold above 1.11 against bearish price trends since early/mid-Feb and has generally only briefly dropped below the mid-figure area that stands as support followed by 1.1100/20.” 

“Resistance after 1.12 is 1.1240/50 and 1.1275 and the 1.13 area.”

“For now, the EUR is unlikely to push higher and may continue to weaken toward 1.10 as the conflict drags on, and possibly escalates in the next few days.”

The loonie has posted two solid days’ worth of gains and looks to be heading for a third as USD/CAD holds losses below the 1.27 zone. Economisst at Scotiabank expect the pair to dip to the 1.2645/35 zone.

Resistance located at 1.2705/10

“We continue to target a drop to the low 1.26 zone (1.2635/45) at least in the short run; trend momentum is picking up on the intraday DMI oscillators, which should limit the USD’s ability to rally today, while longer run DMI signals remain aligned bullishly for the USD, which suggests scope for USD losses –right now – is limited.”

“We spot USD/CAD resistance at 1.2705/10 intraday.”

Senior Economist at UOB Group Alvin Liew reviews the latest US GDP figures.

Key Takeaways

“The 4Q 2021 GDP growth was revised higher to 7.0% q/q SAAR (in line with Bloomberg estimate, and slightly better than the advance estimate of 6.9%), a marked improvement from 2.3% in 3Q. For 2021 as a whole, the US economic growth came in at 5.7% (unchanged from advance estimates and is the highest since 1984) following its worst contraction since 1946, at -3.4% in 2021.”

“Growth in 4Q was again attributed to private consumption as well as business & residential investments but it was inventories that played an outsized role in 4Q, responsible for nearly 5ppts of the 7% growth. Two components, government spending and net exports of goods and services, dragged on US headline GDP in 4Q, but it should be noted the recovery in US exports helped cushioned the net exports decline to less than 0.1ppt while the expiry of several federal programs likely worsened the government spending component.”

“Our GDP growth outlook is for slower pace of increase in 1Q due to the temporary impact from the Omicron wave of COVID-19 infections, but growth will resume subsequently, and still be above potential at 3.5% for the full year of 2022. That said, we note the downside risks to growth due to inflation will now be magnified by the soaring commodity prices amidst the Russia-Ukraine conflict.”

According to IHS Markit's Final US Manufacturing PMI for February, the headline index fell a little to 57.3 from the flash estimate of 57.5. 

Market Reaction

The DXY did not react but remains underpinned on the day by a safe-haven bid, with price action in the global equity space wobbly and commodity prices surging amid fears of supply disruptions as the Russia/Ukraine crisis worsens. The index remains comfortably support above 97.00 ahead of the more widely followed ISM Manufacturing PMI release at 1500GMT. 

• WTI has surged above $101 to hit its highest in over seven-years, with analysts eyeing the 2014 highs near $107.50.
• The rally is being driven by concerns of supply disruptions as Western sanctions against Russia start to bite.
• For now, this has outweighed chatter about coordinated oil reserve releases.

Oil prices have surged this Tuesday as concerns grow about supply disruptions as Western sanctions against Russia, who are currently in the process of invading Ukraine, start to bite, outweighing chatter about coordinated oil reserve releases. Front-month WTI futures have surged to their highest levels since July 2014 above $101 per barrel, with the bulls eyeing a test of the next key area of resistance in the $107.50 area, which marks the 2014 highs.

That translates into on-the-day gains of more than $5.0 and takes WTI’s two-day rally to over $9.0. A senior analyst at Rystad Energy wrote that “the fragile situation in Ukraine and financial and energy sanctions against Russia will keep the energy crisis stoked and oil well above $100 per barrel in the near-term and even higher if the conflict escalates further”.

The US and EU have not imposed direct sanctions on Russian energy companies or on energy exports, but various reports in financial press point to growing difficulties in conducting trade of these goods. Banks have been pulling financing and shipping costs have surged, while major Western-based energy companies are looking to exit their stakes in Russian operations.

Russia exports between 4-5M barrels of crude oil per day, plus a further 2-3M barrels of refined products each day, making the country one of the world’s most important energy exports. Major US banks including Goldman Sachs, Morgan Stanley, and JP Morgan have all upped their oil forecasts to reflect concerns about supply disruptions, with some analysts warning of oil hitting $150.

Press reports suggest that a coordinated crude oil reserve release by the US and its allies could amount to between 60-70M barrels and such a move is currently under discussion at an extraordinary ministerial meeting of the Internation Energy Agency. Confirmation that nations agreed on the release might trigger some profit-taking in crude oil later in the session, analysts suggested, but shouldn’t shift the underlying bullish dynamic.

With fresh sources suggesting OPEC+ is going to stick to its current output policy of increasing quotas by 400K barrels per day/month in April, despite the Russian invasion of Ukraine, hopes of near-term supply relief from OPEC+ remain non-existent.

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, March 2 at 15:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks, regarding the upcoming announcement. 

As the BoC 25 bps rate lift-off is well discounted by the market, the focus will remain on any hawkish tilt in the forward guidance.

NBF

“BoC should finally begin its rate normalization exercise. Wednesday’s rate hike will be the first of many (five in our estimation) this year as the BoC finds itself on the back foot in its fight against above-target inflation. There’s undoubtedly a very strong case to be made for going big with a 50 basis point move but we’ve not seen enough from the BoC to suggest that’s coming. On the other hand, the central bank will have become aware of increased geopolitical risk following the invasion of Ukraine by Russia, an element that could favor a more cautious approach. This explains why, as of now, our base case incorporates a vanilla 25 bp-25 bp March-April hike structure, consistent with the empirical record for BoC tightening cycles.”

TDS

“The BoC loudly telegraphed a rate hike in March; we look for a 25bp increase, as the facts on the ground haven't changed enough to justify a more drastic tightening. We expect the Bank will remain in its reinvestment phase for the balance sheet, and it will signal more rate hikes to come. With the Fed and BoC set to hike next month, we don't see a huge swing factor for USD/CAD. The BoC might offer CAD a marginal first-mover advantage versus the USD but much depends on risk appetite and geopolitical developments.”

ING

“A 25bp rate hike is our call for this meeting despite geopolitical nervousness. We continue to look for six interest rate increases in total from the BoC this year, with a further three in 2023. This would leave the policy rate at 2.5% by the end of next year, a level it was last at all the way back in October 2008.”

RBC Economics

“Russia’s invasion of Ukraine is not expected to keep the Bank of Canada from hiking interest rates. The BoC in January expected the Omicron wave would be ‘less severe than previous waves’ and current conditions look to be playing out that way. We look for the BoC to follow Wednesday’s expected rate hike with 3 more this year, the next coming as soon as April.”

Citibank

“We expect a 25bp rate hike this week, taking the policy rate to 0.50%. Our base case is then 25bp rate hikes at each of the April, June, July, and October meetings this year but hiking by less than what markets currently price for tightening beyond 2022. One potential hawkish risk for this meeting, however, would be if the BoC announces the end of balance sheet reinvestments. This is not our base case but there could be some more communications around the details of how balance sheet runoff will work (when it commences). We also expect a largely neutral statement, as the BoC has been clear in its intentions to raise rates in a series of steps in order to respond to too-high inflation.”

CIBC

“A healthy Q4 for real GDP ended on a soft note in December, and with that likely to have carried through into January, sets the stage for a Covid-related soft patch in the overall Q1 pace. But unlike when it met in January, the BoC can point to a steady taming in hospitalizations and a reopening in services in late February, giving it the green light for what we expect will be a quarter-point hike this month, and another in April. The Bank isn’t a fan of forward guidance when it’s no longer at the lower bound on rates, so the market will be left to its own devices in estimating the precise path ahead. But its language will indicate that it expects a series of rate hikes to provide a braking force on inflation later this year and into 2023 while conceding that in the near-term, the CPI will continue to run well about its target.”

Wells Fargo

“As inflation and labor market dynamics evolve in this way, we continue to believe the BoC will look to raise interest rates. We recently adjusted our forecast and now believe BoC policymakers will raise policy rates 25 bps. We will be paying attention to any commentary around recent developments and their impact on monetary policy.”

In spite of recent developments, strategists at TS Securities believe the Federal Reserve is still likely to start raising rates in March. However, the tightening in financial conditions thus far makes the odds of a 50bp rate hike less likely, so they expect the Fed to hike rates by 25bp at every meeting until November.

Fed to pause after the November hike to reassess policy for several meetings

“While there are clear downside risks posed by geopolitical uncertainty and tighter financial conditions, we do not think that this will derail the Fed from starting the hiking cycle in March. We continue to forecast the Fed to raise rates at the March FOMC meeting, but believe the odds of a 50bp move have fallen significantly.”

“We look for the Fed to start the hiking cycle in March with a 25bp rate hike and deliver six consecutive hikes in 2022. We forecast the Fed funds rate to end the year at 1.5-1.75%.”

“After a pause at year-end and early 2023, we see the Fed raising rates three more times to reach a terminal rate of 2.25-2.50%.”

“We also adjust our US rates forecasts given the tweak to our Fed call but continue to look for the 10y to reach 2.5% by year-end.”

• Gold is well supported near $1920 amid strong demand for inflation protection as commodity prices surge.
• Russia/Ukraine headlines have been negative and indicative that de-escalation in the near future remains highly unlikely, supporting haven assets.
• US data and Fed speak, though worth keeping an eye on, will likely play second fiddle this week.

Gold appears to have started March where it left things off in the final weeks of February and is trading firmly on the front foot, underpinned by a decent dose of demand for inflation protection as commodity prices surge. Spot prices (XAU/USD) currently trade in the $1920 region, up about 0.5% on the day, with tailwinds also coming from global debt markets, where yields have plummetted for a second successive session as traders reduce central bank tightening bets. The US 10-year, for instance, is down a further 9bps on Tuesday to under 1.75%, having been above 2.0% as recently as last Friday. Lower bond yields increase the relative attractiveness of investing in non-yielding assets such as precious metals.

In terms of the latest on the Russia/Ukraine front; headlines have been negative and indicative that de-escalation in the near future remains highly unlikely. Ukrainian President Volodymyr Velenski said talks between the Ukrainian and Russian delegation on Monday did not achieve their intended aim and Russia continues to amass troops in the north in preparation for an assault on Kyiv. All the while, Russian forces continue to gain ground in southern regions of the country and the rhetoric between Russian and Western/NATO officials gets ever more heated.

As a result, energy prices and the prices of other commodities where Russia is a ley exporter are likely to remain underpinned in the near future, which may keep a bid in precious metals amid demand for inflation/stagflation protection. Bulls are subsequently likely to continue to eye a retest of last week’s highs in the $1970s and a potential push back to record highs above $2000. Traders should remember that geopolitics isn't the only game in town this week, with plenty of US data and Fed speak also to keep an eye on, though this is likely to play second fiddle to Russia/Ukraine developments.

Gold has catapulted to a $1,974 high before giving up gains and quickly succumbed to a $1,878 low. Technically, in the bigger picture, gold’s price profile remains bullish unless it craters under $1,770, Benjamin Wong, Strategist at DBS bank, reports.

Stay constructive, buy the dips

“For gold to dispel the prospect of a corrective decline before resuming its upward path, a move that sustains over $1,950-$1,973 is required.”

“Our prior tactical $1,810 long was taken out in the recent volatile moves, and we replenish a long at $1,863. We add on at $1,810 with an invalidation at $1,770 accompanied by a $1,920 harvest point.” 

“Sub-$1,780-$1,770 would be a key level for gold to hold regardless of market volatility to ensure the bullish build-up from last August’s $1,690 level stays intact. A break thus can likely alter the larger landscape; however, this is not the fancied case.” 

“A noticeable gap between CFTC speculators and industry insiders needs to narrow before gold stabilises.”

USD/IDR is expected to pick up further traction with the next target at 14,408 ahead of 14.448, suggested Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“USD/IDR traded between 14,310 and 14,385 last week, narrower than our expected range of 14,270/14,380… with Daily MACD turning higher, the bias for the rest of this week is on the upside.”

“Resistance is at 14,408 followed by a rather strong level at 14,448.”

The European Parliament has accepted Ukraine's application to join the EU and a special admission procedure has begun, Nexta TV reported on Twitter on Tuesday. 

For Ukraine to formally become part of the EU, all member states will need to agree to its accession and the European Council will also need to approve it. For now, Ukraine remains a candidate to join the EU. 

OPEC+ is likely to stick to its existing policy of increasing output by 400K barrels per day (BPD) each month in April, with Russia's invasion of Ukraine having not affected OPEC+ deal functioning so far, sources told Reuters. 

"We are striving for Europe to choose for Ukraine," Ukrainian President Volodymyr Zelenskyy said on Tuesday, as reported by Reuters.

"We are fighting to be equal members of Europe," Zelenskyy added. "Ukraine is giving away its best people for the desire to be treated as equals."

Market reaction

Markets remain risk-averse during the European trading hours on Tuesday following these remarks. As of writing, S&P futures were down 0.8% on the day, the benchmark 10-year US Treasury bond yield was losing more than 5% at 1.73 and the US Dollar Index was rising 0.2% at 96.95.

Quek Ser Leang at UOB Group’s Global Economics & Markets Research, noted that further upside in USD/THB is expected to face a strong hurdle at 33.13.

Key Quotes

“We highlighted last Monday (21 Feb, spot at 32.13) that ‘further USD/THB weakness is not ruled out but conditions remain deeply oversold and a sustained decline below 31.95 appears unlikely’. We added, ‘a breach of 32.32 would indicate that the current USD/THB weakness has stabilized’. While we noted the oversold conditions, we did not expect the sharp and swift bounce as USD/THB soared to 32.89 last Thursday (24 Feb).”

“Daily RSI is unwinding rapidly from oversold conditions and this coupled with daily MACD moving into positive territory suggests the rebound has more room to go. A breach of the 55-day exponential moving average at 32.92 would not be surprising but the declining trend-line at 33.13 is a strong resistance level and may not be easy to crack. On the downside, a break of 32.30 (minor support is at 32.44) would indicate that the current upward pressure has eased.”

British Prime Minister Boris Johnson said on Tuesday that they will do more to exclude Russian banks from the SWIFT system and freeze their assets, as reported by Reuters.

Additional takeaways

"The odds have always been heavily against the Ukrainian armed forces."

"It's already clear Putin will ultimately fail in Ukraine."

"We must prepare for an even larger outflow of refugees, perhaps in the millions."

"Europe must finally wean ourselves off Russian oil and gas."

"We are ready for a prolonged crisis."

"There is only one way out and that is for Putin to turn back the tanks."

"It is hard to see how Putin can be seen as a valid interlocutor."

"I cannot pretend this is something the UK can fix by military means."

"Reasonable for Ukraine to ask for EU membership."

Market reaction

The British pound struggles to find demand on Tuesday and the GBP/USD pair was last seen posting small daily losses near 1.3400.

Russian Prime Minister Mikhail Mishustin said on Tuesday that Russia has temporarily suspended options for foreign investors to pull from Russian assets, as reported by Reuters.

Additional takeaways

"Financial measures ordered by President Vladimir Putin will support the rouble rate."

"Import substitution should become the key area of development for us."

"We still see foreign businesses as potential partners."

"Russia should intensify economic shift away from dependence on natural resources."

Market reaction

The market mood continues to sour during the European trading hours and the Euro STOXX 600 Index was last seen losing 1.7% on a daily basis.

A Kremlin spokesperson said on Tuesday that it was too early to assess the results of the latest talks with Ukraine and noted that President Vladimir Putin was briefed on the matter, as reported by Reuters.

Additional takeaways

"We need to analyse and think about perspective after talks with Ukraine."

"Ukraine's EU application is not a strategic security question because EU is not a military bloc."

"Not in a position to give an assessment of the military situation, this is a question for the defence ministry."

"Russian forces are not hitting civilian infrastructure and housing, this is ruled out."

"Kremlin blames reports of attacks on civilian targets on 'nationalist groups using people as human shields."

"No plan at the moment for Putin to speak to Zelenskyy."

"Sanctions imposed against Putin personally have no effect at all."

"There can be no question of sanctions forcing us to change our position."

"Russia categorically rejects accusations of war crimes."

"Allegations Russia used cluster bombs or vacuum bombs are fake."

"Russia considers Zelenskyy legitimate president of Ukraine."

"Zelenskyy could give the command to lay down arms and then there would be no casualties."

Market reaction

EUR/USD remains on the back foot as market mood continues to sour in the European session. As of writing, the pair was down 0.42% on the day at 1.1172.

• AUD/USD is looking to extend the pullback after rejection just shy of 0.7300.
• Risk sentiment takes a big hit after Russia says will continue operations in Ukraine until it achieves its goal.
• Dovish RBA adds to the weight on the aussie while Chinese PMIs improve.

AUD/USD is feeling the pull of gravity once again after facing rejection just below the 0.7300 level, as the US dollar springs back to lift amid a renewed wave of risk-aversion across the financial market.

Comments from the Russian official re-ignited the risk-off trades, with the S&P 500 futures accelerating declines towards 4,378, down 0.75% on the day.

Russian Defence Minister Sergei Shoigu said that Russia “will continue operation in Ukraine until it achieves its goals, per Interfax. Adding to it, Russia's Foreign Minister Sergey Lavrov said that Ukraine still has soviet nuclear technology,” adding that Moscow “cannot fail to respond to this danger.”

The high beta AUD retreated further in tandem with the risk sentiment, as investors scurried for safety in the US dollar. The US dollar index jumped to retest 97.00, up 0.15% on the day.

Earlier in the day, the Reserve Bank of Australia (RBA) left the key interest rates unchanged at 0.10% but said that the board is prepared to be patient, given the Russia-Ukraine war uncertainty.

Markets have also shrugged off the upbeat Chinese Manufacturing PMIs, as the sentiment around the Russia-Ukraine war dominates and will continue doing so ahead of the US ISM Manufacturing PMI.

AUD/USD: Technical levels to consider

Economist at UOB Group Lee Sue Ann suggests the Bank Negara Malaysia (BNM) could keep its policy rate unchanged at the Thursday’s meeting.

Key Takeaways

“We think the build-up of domestic inflation pressures together with sustaining growth momentum and more aggressive Fed monetary policy tightening would justify an interest rate hike by BNM as early as in 2Q22.”

“We expect the OPR to be raised twice this year (+25bps in 2Q22 and +25bps in 3Q22), bringing it to 2.25% by end-2022.”

• EUR/USD fades the earlier uptick to 1.1230.
• Cautiousness remains high and fuels the risk aversion.
• Flash Germany CPI, US ISM Manufacturing next of relevance.

The selling bias around the single currency remains well and sound and now motivates EUR/USD to recede from earlier tops near 1.1230 to the sub-1.1200 region on turnaround Tuesday.

EUR/USD weighed down by geopolitics

EUR/USD resumes the downside and now adds to Monday’s losses around the 1.1200 neighbourhood after the Russian offensive is expected to continue until its target is achieved, said Russia’s Defence Minister. His comments encouraged the re-emergence of the risk aversion among traders and put the risk complex under extra pressure in the first half of the week.

Indeed, inflows to the safe haven universe remains pretty much unchanged on the back of the fragile geopolitical environment and after initial Russia-Ukraine talks in Belarus on Monday only yielded the promise of further dialogue in the near future.

In the meantime, spot is expected to remain under scrutiny for as long as the military conflict in Ukraine lasts, always tracking the risk aversion sentiment as well as safe haven (dollar) dynamics.

Closer to home, Germany advanced CPI will be the salient event later in the European afternoon, while the ISM Manufacturing takes centre stage across the pond later in the NA session. Earlier in the session, final Manufacturing PMI in Germany came at 58.4 and 58.2 when it comes to the broader Euroland.

What to look for around EUR

EUR/USD continues to look to the geopolitical scenario and risk appetite trends for near-term direction. On this, the recent deterioration of the Russia-Ukraine front is expected to keep the pair under pressure amidst solid risk-off sentiment and demand for the greenback. In the meantime, bouts of strength in the pair should remain underpinned by speculation of a potential interest rate hike by the ECB probably sooner than many anticipate, higher German yields, persevering elevated inflation and a decent pace of the economic activity and auspicious results from key fundamentals in the region. The threat to this view, as usual, comes from the Fed and a potential tighter-than-expected start of the normalization of its monetary conditions.

Key events in the euro area this week: Germany, EMU Final Manufacturing PMI, Germany Flash CPI (Tuesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate, EMU Flash CPI (Wednesday) – Germany/EMU Services PMI, EMU Unemployment Rate, ECB Accounts (Thursday) – Germany Trade Balance, EMU Retail Sales (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is losing 0.34% at 1.1180 and faces the next up barrier at 1.1322 (55-day SMA) followed by 1.1390 (weekly high Feb.21) and finally 1.1395 (weekly high Feb.16). On the other hand, a drop below 1.1118 (low Feb.28) would target 1.1106 (2022 low Feb.24) en route to 1.1100 (round level).

USD/BRL is gradually drifting towards the lower limit of its large consolidation at 4.95/4.89. Should this support gets violated, the pair would extend the down move towards 4.81 and projections of 4.73, analysts at Société Générale report.

USD/BRL to rebound towards 5.28 if 4.89 holds

“4.95/4.89 is a crucial support zone. Defending this can result in a rebound towards 5.28 and perhaps even towards 5.38, the low of November.” 

“Only if support at 4.89 get violated, would there be a risk of extension in the down move towards 4.81 and projections of 4.73.”

USD/CNH risks a deeper pullback once 6.3000 is cleared according to FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for USD to ‘test the resistance at 6.3350’ did not materialize as it traded within a range of 6.3072/6.3275 before closing largely unchanged at 6.3133 (+0.04%). The underlying tone has softened somewhat and USD could dip below 6.3050 but a clear break of 6.3000 is unlikely. On the upside, a breach of 6.3200 would indicate the current mild downward pressure has eased.”

Next 1-3 weeks: “Our latest narrative was from last Friday (25 Feb, spot at 6.3185) where USD is likely to trade between 6.3050 and 6.3450. The underlying tone has softened but USD has to close below 6.3000 before a sustained decline is likely. The chance for USD to close below 6.3000 is not high for now but it would remain intact as long as USD does not move above 6.3450 within these few days.”

EUR/USD has remained within the limits of 1.1120 and 1.1485 since January. A break under the lower band would open up additional losses towards 1.0840, economists at Société Générale report.

Reclaiming 1.1330/1.1345 essential to avert further dip

“A bounce is not ruled out however a descending trend line at 1.1330/1.1345 could cap. Crossing this would be essential for a retest of 1.1485.”

“In the event 1.1120 gets violated, there would be a risk of next leg of downtrend towards projections of 1.1080/1.1040 and the multiyear ascending trend line at 1.0840.”

AUD/USD is up modestly on the day at 0.7270. If the aussie manages to surpass the 0.7340/0.7360 resistance zone, the pair could advance towards last October peak of 0.7560, economists at Société Générale report.

0.7340/0.7360 could cap upside

“Short-term hurdle is located at 0.7340/0.7360, a descending trend line drawn since February last year. If the pair establishes itself beyond this resistance, the phase of rebound could extend towards 0.7485 with possibility to retest last October's peak of 0.7560.”

“Graphical level of 0.6990 will remain important support near-term.”

Russia's Foreign Minister Sergey Lavrov said on Tuesday, Ukraine still has soviet nuclear technology,” adding that Moscow “cannot fail to respond to this danger.”

Meanwhile, the country’s Defence Minister Sergei Shoigu said that Russia “will continue operation in Ukraine until it achieves its goals, per Interfax.

Market reaction

Risk sentiment takes a hit on these above comments, with S&P 500 futures dropping 0.58% on the day.

AUD/USD has stalled its upside while the US dollar index is seeing some fresh signs of life.

GBP/USD seems to have settled comfortably above 1.3400 early Tuesday. As FXStreet’s Eren Sengezer notes, cable looks to extend recovery to 1.3500.

Additional recovery gains toward 1.3500 in case buyers claim 1.3440

“In case market participants are convinced of Russia's willingness to look for a diplomatic solution to the conflict, the pound could continue to gather strength against the relatively safer dollar. On the flip side, the greenback is likely to attract investors if there is a negative shift in risk sentiment.”

“An ascending triangle seems to have formed on the four-hour chart. The triangle resistance is located at 1.3440 and it could be assessed as a bullish sign if this level turns into support.”

“On the upside, 1.3500 (psychological level) could be seen as the next target ahead of 1.3540 (100-period SMA, 200-period SMA).”

“Supports are located at 1.3400 (psychological level, 20-period SMA, ascending trend line), 1.3340 (static support) and 1.3300 (psychological level).”

The UK manufacturing sector activity expanded more than expected in February, the final report from IHS Markit confirmed on Tuesday. 

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was revised sharply higher from 57.3 to 58.0 in February, beating expectations of 57.3.

Key points          

Output and new orders expand at quicker rates.

New export orders decrease.

Input price inflation remains elevated.

Rob Dobson, Director at IHS Markit, commented on the survey

“February saw rates of expansion in the UK manufacturing production and new orders both accelerate. Growth was boosted by stronger domestic demand and by firms catching up on delayed work as material shortages and supply chain disruptions started to dissipate. Consumer goods output in particular also benefitted from increased sales due to a further easing of COVID restrictions.”

“However, the trend in new export orders is less positive, slipping back into contraction after January’s short-lived uptick. While companies maintain a positive outlook for the year ahead, rising headwinds, especially the intensifying geopolitical backdrop, are ratcheting up near-term risks to demand and confidence.”

GBP/USD reaction

At the press time, GBP/USD is holding the upside above 1.3400, currently trading at 1.3425. The spot is modestly flat on the day.

European Union (EU) “can't ban Russian gas completely,” European Commissioner for Competition, Margrethe Vestager, said in an interview with Der Spiegel on Tuesday.

The developing humanitarian crisis is deeply concerning. Amid the current environment, economists at UBS think the US dollar should stand out and see the greenback as an optional choice to help protect portfolios.

Position for US dollar strength

“The US dollar is considered a safe-haven currency that tends to rally during periods of heightened geopolitical uncertainty or risk-off sentiment in financial markets.”

“We think that market expectations of six or seven US interest rate hikes this year are likely to support the US dollar in the months ahead.”

“We see the greenback as an attractive tactical currency position at present.”

• DXY comes under pressure below the 97.00 yardstick.
• The appetite for riskier assets improves a tad on Tuesday.
• ISM Manufacturing, Final Manufacturing PMI next of note later.

The greenback, when tracked by the US Dollar Index (DXY), struggles for direction in the 96.70 zone following some mild improvement in the risk complex.

US Dollar Index keeps looking to geopolitics

The index remains vigilant on the events coming from the Russia-Ukraine military conflict, although the recent talks between officials from both parties appear to have opened the door to a negotiated solution in the near term.

In the meantime, US yields have reversed the recent downside and now attempt a tepid recovery across the curve, always underpinned by the shift in investors’ appetite for riskier assets.

Other than geopolitics, market participants will be closely following the results from the US manufacturing sector, where the ISM gauge will take centre stage seconded in relevance by the final print from Markit.

What to look for around USD

In the broader scenario, the war-led risk aversion continues to bolster the dollar and keeps the index well bid on the back of the deterioration of the geopolitical arena. The constructive view in the buck remains underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. In the longer run, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: Final Markit Manufacturing PMI, ISM Manufacturing PMI (Tuesday) – MBA Mortgage Applications, ADP report, Powell’s testimony, Fed’s Beige Book (Wednesday) – Initial Claims, ISM Non-Manufacturing, Factory Orders, Powell’s testimony (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration.

US Dollar Index relevant levels

Now, the index is losing 0.01% at 96.73 and a break above 97.73 (2022 high Feb.24) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 96.03 (55-day SMA) followed by 95.67 (weekly low Feb.16) and then 95.17 (weekly low Feb.10).

The Reserve Bank of Australia (RBA) became the first G10 central bank to meet since conflict in Ukraine started. In the view of economists at MUFG Bank, the policy statement will keep alive expectations that the RBA is moving closer to raising rates that have been supporting the Australian dollar recently.

RBA places more focus on inflation impact from Ukraine conflict

“The RBA noted that recent geopolitical tensions were a major new source of uncertainty. The main policy focus though was on the risk they pose for faster inflation rather than any material impact on growth. They now expect a higher CPI spike due to higher petrol prices resulting from global developments.” 

“While inflation has picked up, the RBA still believes it is too early to conclude it will be sustained within their target range. It is prepared to be patient before raising rates. There was no clear indication that the RBA has moved closer to raising rates.” 

“The Australian rate market is more confident though that inflationary conditions will encourage the RBA to begin raising rates by the summer.”

“The aussie should continue to outperform in the near-term unless there is deeper correction in risk assets.”

The Reserve Bank of Australia (RBA) left its policy rate unchanged at 0.1% as expected and the bank reiterated that the policy rate will not be increased until actual inflation is sustainably within the 2%-3% target range. Subsequently, economists at ING expect the AUD/USD pair to be capped at the 0.7300 level.

RBA freezes the policy discussion until May

“The RBA defied any expectations that it is moving towards a more hawkish stance. The focus has remained on wage growth which ‘remains modest’, adding that ‘it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target’. This virtually freezes the policy discussion until mid-May, which may put a cap on AUD gains compared to peers that can count on ongoing central bank tightening cycles.” 

“Australia’s growth figures for 4Q tomorrow are expected to show a 3.5% quarter-on-quarter bounce, but should have a limited impact on AUD given the RBA’s focus on wage dynamics.”

“AUD/USD may climb to the 0.7300 mark today on the back of relatively upbeat risk environment, but even though it is less exposed to the Ukrainian conflict than European currencies, its high beta to global sentiment continues to pose downside risks in the short-term.”

The most important event right now is clearly Russia’s attack on Ukraine. In the opinion of economists at Danske Bank, the impact will not derail the global expansion but with the Federal Reserve hiking rates at every meeting in 2022, the EUR/USD pair is forecast at 1.08 on a 12-month view.  

Ukraine crisis a new risk to global growth 

“The Russian attack on Ukraine creates new downside risk to growth and further upside risks to inflation. However, our baseline scenario is that it will not derail the global expansion and we still look for the Fed to hike rates at every meeting this year and ECB to hike in December.”

“We continue to look for bond yields to move higher over the coming quarters on the back of high inflation and Fed tightening not only via higher rates but also ‘active quantitative tightening’ by selling bonds starting in May. Geopolitics currently mitigate the upward pressure on global yields.”

“EUR/USD has moved lower still to 1.12 and we expect the tightening cycle and economic slowdown to drive a further decline on a 12-month horizon to 1.08.”

In opinion of FX Strategists at UOB Group, USD/JPY is still seen navigating the 114.80-115.90 range in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the outlook is mixed’ and we expected USD to ‘trade between 115.00 and 115.90’. USD subsequently dropped to 114.85 before rebounding (high has been 115.77). The outlook remains mixed and USD is likely to trade between 114.85 and 115.65 for today.”

Next 1-3 weeks: “We continue to hold the same view as from last Friday (25 Feb, spot at 115.45). As highlighted, the outlook appears to be neutral and USD is expected to trade within a range of 114.80/115.90 for now.”

GBP/USD stays relatively quiet above 1.3400. However, downside risks persist as the focus will be on whether sanctions/retaliation will start impacting the commodity flows from Russia, economists at ING report.

Sterling still vulnerable

“The pound is set to remain highly sensitive to any news regarding a possible curb in gas flows from Russia and more spikes in gas prices, although a somewhat reduced volatility is allowing some tentative stabilisation around the 1.3400 mark in GBP/USD since yesterday. Still, we continue to see a clear prevalence of downside risks for the pair.”

“As eurozone CPI numbers could provide some support to the euro today and tomorrow, EUR/GBP could inch higher towards the 0.8400 level it briefly touched last week.”

After the loonie initially fell noticeably against the USD last week, a recovery set in, which continued on Monday despite a roller coaster ride. In view of the excessively high inflation rates, the Bank of Canada (BoC) is set to embark on a path of hiking rates, providing support to the loonie, economists at Commerzbank report.

CAD to benefit from significantly higher commodity prices

“One support for the CAD recovery is likely to be the expectation that Canada, as a commodity country, will benefit from significantly higher commodity prices. In this context, Putin's war in Ukraine and the high uncertainty fuel the expectation that the supply shortage, will continue or even worsen – with the consequence of further rising (commodity) prices.”

“Expectations of interest rate hikes are likely to provide further support for the loonie. Inflation rates, which have already shot well above the Bank of Canada's (BoC) target range, could accelerate further instead of drifting back toward the 2% target value as expected by the BoC from the second half of the year.”

Today’s CPI figures out of Germany are set to have some market impact despite investor focus being firmly on Ukraine. Economists at ING expect the EUR/USD pair to stay above 1.12 amid high inflation data from Germany.

German inflation in focus

“We expect to see a rise in February’s German headline inflation to 5.1%, in line with expectations, which may offer some support to the euro as markets may at least cement their pricing for a September ECB hike after having re-priced the timing for policy tightening in the past weeks.”

“We expect evidence of accelerating inflation to help EUR/USD hold on to the 1.1200 level for now, although sanctions/retaliation and rising commodity prices still suggest a downward-tilted balance of risk for the pair.”

Fundamentally driven forecasting of Russian assets or exchange rate no longer makes sense, for now at least, according to economists at Commerzbank.

Intractable ruble

“In a narrow sense, the ruble exchange rate might reflect valuation appropriate for clearing the energy and commodity trade which Russia will continue to do. Even this will be full of caveats as western countries are rapidly announcing programmes to substitute away from Russian energy.”

“In the end, the exchange rate would be valued to reflect an economy which is retreating to a shell of its former condition. Optimists will look for some resolution on the geopolitical side after which the harshest sanctions might be reversed. Equally, pessimists will worry about the various possible military and other accidents – if any of those scenarios come to pass, that would keep Russia, like Iran, out of the mainstream world economy for the years to come.”

The FX market expected little from the Reserve Bank of Australia (RBA) Policy Statement. And that appears to have been the correct stance here. Regarding the AUD/USD pair, the commodity story remains super supportive for the aussie, but the 200-day moving average (DMA) at 0.7330 is set to cap gains.

RBA to be patient as inflation to spike higher on Ukraine

“The RBA did warn that ‘the war in Ukraine is a major new source of uncertainty’ and that ‘the prices of many commodities have increased further due to the war in Ukraine’. However, it also sounded more upbeat on the outlook for the ‘unemployment rate to fall to below 4% later in the year and to remain below 4% next year’ and that ‘the decline in infection rates and high numbers of job vacancies point to a strong bounce-back [in hours worked] over the months ahead’.”

“We tend to see the aussie as being well supported by super strong commodity prices, though likely capped by the 200-DMA up at 0.7330.”

“We still see weakness developing in the AUD into the March Fed lift-off which is now less than 3 weeks away. Bigger picture, we would look to use that weakness as an opportunity to buy for strength later in the year.”

Open interest in natural gas futures markets increased for the third session in a row on Monday according to advanced prints from CME Group. Volume followed suit and rose by around 5.5K contracts.

Natural Gas could revisit the 200-day SMA

Prices of natural gas extended the downside at the beginning of the week amidst increasing open interest and volume, refocusing the attention to the 200-day SMA around $4.30 per MMBtu as the next target of note in case the downtrend accelerates.

NZD/USD could see its upside bias gathering traction in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘while the risk for today is on the downside, any weakness is not expected to challenge last week’s near 0.6630’. Our view for a lower NZD was wrong as it soared and closed on a firm note at 0.6776 (+0.47%). The rapid rise has room to extend but in view of the overbought conditions, the major resistance at 0.6810 is unlikely to come under challenge (there is another resistance at 0.6780). Support is at 0.6745 followed by 0.6725.”

Next 1-3 weeks: “Last Friday (25 Feb, spot at 0.6695), we highlighted that a top is in place and we expected NZD to trade between 0.6630 and 0.6760. Yesterday (28 Feb), NZD gapped down upon opening but subsequently covered the gap as it surged to high of 0.6777 during NY session. Upward momentum is beginning to build and NZD is likely to head higher. That said, 0.6810 is a solid resistance level and may not be easy to break. On the downside, a breach of 0.6690 (‘strong support’ level) would indicate that NZD is not ready to head higher just yet.”

Here is what you need to know on Tuesday, March 1:

The positive shift witnessed in risk sentiment in the second half of the day on Monday remained short-lived with Russia ramping up its military presence in Ukraine. Investors remain cautious early Tuesday and the greenback holds its ground against its major rivals. Later in the day, inflation data from Germany and the ISM's February Manufacturing PMI from the US will be looked upon for fresh impetus. European Central Bank (ECB) president Christine Lagarde is also scheduled to deliver a speech at 1300 GMT. Additionally, the US Federal Reserve is expected to publish the opening remarks of FOMC Chairman Jerome Powell's testimony on Wednesday. 

Following a long meeting on Monday, delegations from Russia and Ukraine have agreed to meet again for the second round of "peace talks," reviving hopes for a diplomatic solution to the crisis. Nevertheless, NBC News reported that US intelligence agencies have determined that Russian President Putin could "double down on violence" as he was frustrated with his military struggles in Ukraine. Other headlines on the war showed that a huge military convoy was moving toward Kyiv and Russia was planning to choke off supply routes to the capital city. 

US stocks futures indexes trade flat in the early European session on Tuesday and the benchmark 10-year US Treasury bond yield is up more than 1% at 1.86%. The US Dollar Index is posting small daily gains but stays below 97.00.

Earlier in the day, the data from China revealed that the business activity in the manufacturing sector expanded in February after contracting in January with the Caixin Manufacturing PMI improving to 50.4 from 49.1. In the meantime, the Reserve Bank of Australia (RBA) left its policy rate unchanged at 0.1% as expected and the bank reiterated that the policy rate will not be increased until actual inflation is sustainably within the 2%-3% target range. AUD/USD is up modestly on the day at 0.7270.

EUR/USD staged a decisive rebound in the American trading hours on Monday and ended up closing the day in the positive territory at 1.1220. The pair is trading in a relatively tight range near 1.1200 early Tuesday.

GBP/USD stays relatively quiet above 1.3400 heading into the European session on Tuesday. The Bank of England will publish the Net Lending to Individuals data for January later in the day, which is likely to be ignored by market participants.

USD/JPY turned south late Monday and closed the first day of the week in the red. The pair is moving sideways around 115.00.

Gold came under heavy bearish pressure in the second half of the day on Monday as risk flows took control of markets. XAU/USD is consolidating Monday's losses, staying afloat above $1,900.

Bitcoin surged higher and gained more than 14% on Monday before steadying above $43,000 early Tuesday. Ethereum rose 11% on Monday and came within a touching distance of the critical $3,000 mark. 

Gold defends critical support line as Russia-Ukraine war flags growth risks. What next? FXStreet’s Dhwani Mehta highlights the key levels to watch out.

Gold bulls have managed to defend the rising trendline

“Markets have started to grow more concerned about the damaging impact of the Russia-Ukraine war on the global economy, which is still reeling from the post-pandemic effects. Investors’ wariness could help keep a floor under gold price.”

“XAU/USD has been forming higher lows, invariably defending the month-long rising trendline support at $1,895. If the bearish pressures intensify and sellers yield a daily closing below the latter, then a fresh downswing will come into force, opening floors towards Thursday’s low of $1,878.”

“Gold bulls could stage a rebound from the $1,895 critical support, putting the $1,920 supply zone back on the sellers’ radars. Further up, buyers could flex their muscles towards the $1,950 psychological level.”

• AUD/USD extends the previous day’s rebound from 21-DMA, renews intraday top of late.
• 15-week-long resistance line guards immediate upside, 100-DMA tests pullback moves.
• Oscillators do favor the bulls but January’s peak, 200-DMA will be tough nuts to crack for them.

AUD/USD takes the bids to refresh intraday peak surrounding 0.7270, up 0.15% intraday heading into Tuesday’s European session.

In doing so, the Aussie pair stretches the previous day’s recovery moves from the 21-DMA to battle a downward sloping resistance line from November 15, 2021, around 0.7275-80.

That said, the upbeat MACD and RSI conditions join a clear run-up beyond the 100-DMA to favor AUD/USD buyers to aim for the 0.7300 threshold.

However, tops marked in January 2022 and the 200-DMA, respectively around 0.7315 and 0.7330, will challenge the pair’s further advances.

Meanwhile, pullback moves remain elusive until staying beyond the 100-DMA level surrounding 0.7235.

During the quote’s weakness past-0.7235, the 0.7200 round figure and 21-DMA level of 0.7173 should gain the market’s attention as a break of which will recall the AUD/USD bears.

AUD/USD: Daily chart

Trend: Further upside expected

Considering preliminary readings from CME Group for crude oil futures markets, traders added nearly 2K contracts to their open interest positions on Monday, reaching the fourth consecutive daily build. In the same line, volume went up by around 103.3K contracts, partially reversing the previous daily drop.

WTI sets sails to $100.00 and above

Monday’s moderate advance in prices of the barrel of WTI was accompanied by rising open interest and volume, which opens the door to the continuation of the uptrend in the very near term. That said, the next target of note initially comes at the triple-digit barrier seconded by the YTD high at $100.50 (February 24).

Further downside in GBP/USD is likely, although there is a tough support around 1.3250, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our view from yesterday where ‘the risk has shifted to the downside’ was incorrect as GBP rebounded and recovered most of its initial steep drop and closed largely unchanged at 1.3421 (+0.07%). The rebound has scope to extend but a clear break of 1.3460 appears unlikely. The major resistance at 1.3505 is not expected to come into the picture. On the downside, a breach of 1.3360 (minor support is at 1.3390) would indicate that the current mild upward pressure has eased.”

Next 1-3 weeks: “After GBP plunged to a low of 1.3273, we highlighted last Friday (25 Feb, spot 1.3380) that further GBP weakness is not ruled out. However, we noted that there is a major support at 1.3250. For now, we continue to see chance for GBP to head lower and only a breach of 1.3505 (no change in ‘strong resistance’ level) would indicate that the current weakness has stabilized.”

• USD/JPY snaps two-day downtrend with mid gains, retreating of late.
• Russia-Ukraine peace talks turned inconclusive on Monday, Moscow stretches invasion of Kyiv.
• Yields underpin USD rebound ahead of US ISM PMI, Biden’s SOTU.

Despite starting March on a positive footing, USD/JPY pares intraday gains around 115.10 ahead of Tuesday’s European session.

The yen pair portrays the market’s anxiety amid mixed concerns over the geopolitical tussles between Russia and Ukraine. Also challenging the risk barometer pair is the cautious mood ahead of US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech, where he is expected to speak on inflation per the latest White House update.

Recent headlines concerning the Russia-Ukraine crisis hints at another tranche of Western economic sanctions on Moscow while Russian diplomats harshly criticize the punitive measures levied due to their, “special operation.” Further, Russian militaries attack civilian buildings and trigger an exodus of people from Ukraine.

It’s worth noting that the peace talks between Ukraine and Russia failed to provide any conclusion the previous day but haven’t been turned down, which in turn keeps markets hopeful of an intermediate solution to the grim issue.

Other than the downbeat sentiment, firmer US Treasury yields and inflation expectations also favor the US Dollar Index (DXY) of late. That said, the DXY rises 0.15% to 96.85 while the 10-year Treasury yields rose two basis points (bps) to 1.86% by the press time. On Monday, US inflation expectations rallied to a 14-week top, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

It’s worth observing that the Euro Stoxx 50 Futures rises 0.70% intraday while the S&P 500 Futures print mild losses at the latest, which in turn flash another signal of the market’s indecision and the same clutches recent USD/JPY moves.

That said, USD/JPY traders will keep their eyes on the risk catalysts for fresh impulse as the Russia-Ukraine crisis is a hot topic. Should the geopolitical tensions worsen, the yen pair may witness further downside due to the yen’s traditional safe-haven appeal.

Technical analysis

Sustained U-turn from five-week-old previous support, near 116.00 at the latest, directs USD/JPY prices towards the 100-DMA support of 114.40.

• USD/RUB has surpassed the psychological level of 100.00 swiftly on meltdown in the Russian economy.
• The firmer negative undertone in Russia will keep the mighty greenback stronger.
• The collapse of Russia’s SWIFT international banking system has restricted their oil exports.

The USD/RUB has surpassed the psychological mark of 100.00 in no time as the Russian economy started melting down after the sanctions by the Western leaders.

In response to Russia’s invasion of Ukraine, the Western leaders imposed sanctions on Russia in which its SWIFT international banking system collapsed, passing on multiplier effects on the domestic economy. The exports of oil and energy paused.

Kremlin got restricted from technology imports. Russian citizens started liquidating their deposits from banks and financial institutions. Adding to that, British Petroleum (BP) announced an exit from Russian oil and gas investments. It is worth noting that BP is the largest foreign investor in Russia.

The restrictions on Russia’s oil exports have impacted Europe and other oil importers too but the carnage on the Russian economy has no match at all.

Should the Russian military attacks on Ukraine intensify, the economy will face more downside risks.

Meanwhile, US Senator from Connecticut Chris Murphy said that “Russians have fallen behind their timeline”. The Ukraine forces are resisting Moscow strongly and Russian equipment and logistics are witnessing multiple failures.

The US dollar index (DXY) is struggling to move upside but is trying hard to build ground near 96.85. The DXY is likely to dance on the tunes of Wednesday’s testimony from the Federal Reserve (Fed) chair Jerome Powell. Apart from Powell’s testimony, the DXY will respect the US Manufacturing Purchasing Managers Index (PMI) data by the Institute for Supply Management (ISM), which is due on Tuesday.

CME Group’s flash data for gold futures markets noted open interest shrank for the third session in a row on Monday, this time by around 1.8K contracts. Volume, instead, extended the choppy activity and increased by around 19.3K contracts.

Gold looks cautious around $1,900

Monday’s uptick in prices of the ounce troy of gold was on the back of shrinking open interest, which removes strength from the likelihood of further gains in the very near term and leaves the precious metal hovering around the $1,900 mark for the time being.

• USD/TRY remains pressured around intraday low, prints three-day downtrend.
• 50-SMA, 61.8% Fibonacci retracement limits immediate declines but bearish MACD hints at further weakness.
• Three-day-old resistance line restricts recovery moves ahead of February’s top.

USD/TRY prints mild intraday losses around $13.80, down 0.20% on a day while heading into Tuesday’s European session.

That said, the bearish MACD signals and sustained trading below a 50% Fibonacci retracement (Fibo.) level of January-February upside keep sellers hopeful to conquer the immediate support near $13.80, comprising 50-SMA and 61.8% Fibo.

Even son a convergence of the 100-SMA and an upward sloping trend line from late January becomes strong support to challenge USD/TRY bears around $13.68.

Should the quote drops below $13.68, a downward trajectory towards $13.55 and February’s low near $13.28 can’t be ruled out.

Meanwhile, recovery moves may initially aim for the 50% Fibonacci retracement level of $13.97 before challenging the falling trend line from Thursday, near $14.03.

In a case where USD/TRY bulls cross the $14.03 hurdle, a gradual run-up towards February’s peak of $14.66 can’t be ruled out.

USD/TRY: Four-hour chart

Trend: Further weakness expected

FX Strategists at UOB Group suggested EUR/USD could still resume the downside in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that the ‘sharp drop in EUR could extend but the major support at 1.1105 is unlikely to come under threat’. However, EUR recovered some of its initial steep decline as it rebounded to close at 1.1219 (-0.43%). Downward pressure appears to have eased and EUR is likely to trade sideways for today, expected to be within a range of 1.1160/1.1260.”

Next 1-3 weeks: “We have held a negative view for more than 2 weeks now. After EUR plunged to 1.1105, we highlighted last Friday (25 Feb, spot at 1.1205) that further EUR weakness is not ruled out but EUR could trade above 1.1105 for a couple of days first. There is no change in our view even though downward momentum is showing tentative signs of easing. Overall, only a breach 1.1290 (no change in ‘strong resistance’ level) would indicate that EUR is not ready to move below 1.1105. Looking ahead, below 1.1105, there is another is another strong support at 1.1080.”

• USD/INR braces high volatility going forward on broadening triangle formation.
• The RSI (14) is holding above 40.00, which claims not a bearish case anymore.
• Bulls need to overstep 75.38 on a sustained basis to reach 75.84.

The USD/INR pair has opened with a bearish opening gap on Tuesday around 75.30. The major has witnessed a plunge on Monday after reclaiming Thursday’s high around 75.82. On Tuesday, the asset is hovering around the 50-period Exponential Moving Average (EMA), which is trading at 75.34.

On an hourly scale, USD/INR is forming a broadening triangle which brings wild movements in the spot prices. Usually, the broadening pattern is diverging in nature and drops fake breakouts on either side, which is why traders face a lot of stop triggers. Therefore, the wild swings in further trading sessions will keep investors on their toes.

The Relative Strength Index (RSI) (14) is holding 40.00 on the lower side, which signals that the asset is not bearish anymore.

The 50-period and 200-period EMAs are scaling higher and indicate a bullish bias but need more confirmation from other filters.

For an upside move, USD/INR needs to surpass Tuesday’s high at 75.38, which may send the major higher towards Monday’s average traded price at 75.59 and Monday’s high at 75.84 respectively.

On the contrary, bears can take the charge if the major slips below Monday’s low at 75.25 towards the 200 EMA at 75.12, followed by February 22 high around 75.00.

USD/INR hourly chart

USD/INR additional levels

• EUR/USD prints the first daily losses in three, recently off intraday low.
• ECB’s Panetta, Fed’s Bostic showed discomfort in faster monetary policy normalization.
• US inflation expectations rose to 14-week high, Treasury yields underpin DXY rebound.
• Russia continues its invasion of Ukraine despite inconclusive peace talks, risk-aversion keeps bears hopeful.

EUR/USD begins March on a sober mood, pares intraday losses around 1.1200 heading into Tuesday’s European session. That said, the major currency pair prints 0.10% daily losses, the first in three days while portraying the USD rebound amid sluggish markets.

The market’s anxiety could be linked to the mixed updates over the Russian invasion of Ukraine, as well as cautious mood ahead of the key data/events.

Talking about the risks, the Kyiv-Moscow peace talks ended without any conclusion the previous day but have been kept on the table for further discussion. Though, Russia’s criticism of the Western sanctions and aggression of military invasion inside Kyiv suggests that the geopolitical risks have miles to go before easing, which in turn underpin the US dollar’s safe-haven demand.

On the other hand, firmer US 10-year Treasury yields, up two basis points (bps) to 1.86% at the latest., favor the US dollar to pare the latest losses. The bond yields might have taken clues from the latest US inflation expectations that rallied to 14-week top the previous day, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

It should be noted, however, that downbeat probabilities of a 0.50% Fed rate hike in March, per CME’s FedWatch Tool, joins comments from Atlanta Fed President Raphael Bostic to test the US dollar buyers. Fed’s Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting." On the same line were comments from European Central Bank (ECB) policymaker Fabio Panetta who mentioned, "The ECB should take moderate and careful steps in adjusting policy, so as not to suffocate the as yet incomplete recovery," per Reuters.

Moving on, EUR/USD traders will keep their eyes on the geopolitical headlines for fresh impulse, as well as speeches from ECB President Christine Lagarde and US President Joe Biden. On the calendar, preliminary readings of Germany’s headlines inflation number, namely
Harmonized Index of Consumer Prices, will also be important to watch for additional directions.

Technical analysis

A horizontal area from late November 2021, around 1.1185-75, restricts the immediate downside of the EUR/USD pair ahead of the 2021 bottom surrounding 1.1120. Even so, recovery moves remain elusive until crossing a 13-day-old descending resistance line near 1.1300.

• Gold begins March with mild losses after the biggest monthly jump since May.
• Markets await key trigger on Ukraine-Russia standoff after peace talks ended without any conclusion.
• Yields favor USD but Biden’s SOTU, Powell’s Testimony and US NFP will be a crucial catalyst.
• Gold Price Forecast: Easing on a better market mood

Gold (XAU/USD) pares daily losses around $1,906 heading into Tuesday’s European session. The bullion rose the most on a monthly basis since May 2021 by closing around $1,910 the previous day.

While the Russia-Ukraine story underpins the metal’s safe-haven demand, the recent rebound of the US dollar seems to have tested the XAU/USD bulls of late.

That said, the US Dollar Index (DXY) rise 0.13% intraday to 96.84 at the latest. In doing so, the greenback gauge benefits from the US Treasury yields, up two basis points (bps) to 1.856%. Also favoring the greenback bulls is the anxiety over the next move of Russia as it has already bombarded civilian buildings while the peace talks are still not off the table.

Elsewhere, upbeat US inflation expectations battle the recently softer Fedspeak to test the DXY bulls. The 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

Amid these plays, the stock futures remain sidelined whereas the Asia-Pacific equities also trade mixed by the press time.

Given the market’s indecision, each incoming headline will be closely observed for fresh directions. Among them, geopolitical and inflation-linked news will be more important. Also crucial will be the US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech.

Technical analysis

Having started the week on a positive note, gold prices remain sluggish around June 2021 peak.

However, the bullish RSI divergence, portrayed as recently higher lows of gold prices accompanies higher bottoms of the RSI line. Also on the positive side is the receding bearish bias of the MACD line.

That said, the metal is currently on the way to the 23.6% Fibonacci retracement (Fibo.) of late January-February upside, near $1,930. However, the gold buyers may struggle to overcome $1,930 but can propel the prices to February’s high around $1,975 on a successful breakout.

In a case where gold buyers manage to keep the reins past the $1,975 hurdle, the 61.8% Fibonacci Expansion (FE) of the stated move, around $1,997, as well as the $2,000 threshold, will be tough nuts to crack for the XAU/USD bulls.

On the contrary, pullback moves remain elusive until breaking $1,869 support convergence, comprising the 100-SMA and an upward sloping trend line from January 28.

It’s worth noting that gold’s weakness below $1,869 will aim for mid-February’s swing low near $1,845 before highlighting the $1,800 threshold for the XAU/USD bears.

Gold: Four-hour chart

Trend: Recovery expected

• Asian markets have rebounded after witnessing a bloodbath last week.
• The risk-off impulse has returned as a repulsive buying, not a reversal.
• The odds of sellers returning to their terminals are very high.

The vulnerable Asian markets have turned positive this week after the turmoil seen in the last week of February. The escalation in the Russia-Ukraine war forced the market participants to ditch the risk-sensitive assets and park their funds into safe-haven assets. Asian stocks take the bullet and nosedive strongly.

The chatters between the Kremlin and Ukraine on Monday to ceasefire brought a fresh wave of risk-on impulse in the market. Although the negotiations ended without any outcome, an initiative for a truce had been welcomed by the market.

Moreover, China’s upbeat Caixin Manufacturing PMI has also supported the Asian markets. The Caixin Manufacturing PMI has printed at 50.4 higher than the previous print of 49.1 and market estimates of 49.3. Despite the lower economic activity in China during the Lunar New Year when factories remain closed, Jinping’s economy has outperformed.

However, the recent surge in the Asian markets should be tagged as repulsive buying, not a reversal. The world is now aware of the arbitrariness of Russian President Vladimir Putin and the man is not going to give up easily despite building up sanctions from the Western leaders. The isolation of Russia from the SWIFT international banking system has crippled its economy by restricting its oil and energy exports.

If any positive development relating to a ceasefire between Russia and Ukraine flashes then the Asian markets will move north like there is no tomorrow. Until it happens, the odds of sellers returning to the terminals soon are very high.

• USD/IDR bounces off intraday low after Indonesia inflation data.
• Indonesia Inflation figures eased in February, Core Inflation rose.
• Sluggish markets, firmer yields underpin USD rebound with eyes on Russia-Ukraine headlines.

USD/IDR pauses the early Asian declines after Statistics Indonesia released February month inflation data on Tuesday. That said, the Indonesia rupiah (IDR) pair picks up bids to $14,350 of late while paring the intraday losses of 0.20% at the latest.

That said, Indonesia's Inflation data weakens on both MoM and YoY basis, to -0.02% and 2.06% versus 0.03% and 2.2% in that order. However, the Core Inflation rose to 2.03% against market consensus of 1.93% and 1.84% previous readouts.

It’s worth noting that the US dollar’s rebound also played its role in the latest USD/IDR recovery.

The greenback recently benefited from the upbeat US Treasury yields, up two basis points (bps) to 1.86% at the latest, as well as the market’s anxiety over the Russia-Ukraine standoff.

Read: US Senator Murphy: West is coordinating to freeze and seize the assets of Russian Pres. Putin

Overall, USD/IDR portrays the impact of downbeat Indonesia inflation and the latest sour sentiment may keep buyers hopeful to overcome the nearby key hurdle.

Technical analysis

Unless crossing a three-month-old resistance line, near $14,420 by the press time, USD/IDR sellers keep the reins.

• GBP/USD pauses the two-day winning streak, fades last week’s bounce off 10-week low.
• UK public inflation expectations propel BOE rate-hike calls but US inflation expectations fail to back 0.50% rate-lift.
• EU’s Funding halt to British scientists portray Brexit woes, Russia extends Ukraine’s invasion despite global sanctions.
• February’s activity numbers, US President Biden’s SOTU will entertain traders but risk catalysts will be the key.

GBP/USD remains depressed around the intraday low of 1.34005 during Tuesday’s Asian session. The cable pair consolidated the monthly losses in the last two days before the latest retreat.

The US dollar pullback and increasing odds of the Bank of England’s (BOE) hawkish moves in the upcoming meetings favored the cable buyers of late. Though, fears of Ukraine-Russia and the US dollar’s latest rebound recently challenged the recovery moves.

On Monday, a survey from the US bank Citi and polling firm YouGov said their gauge of expectations for inflation in five to 10 years' time rose to 4.1% from 3.8% in January, equalling a record high struck in June 2011, per Reuters. The upbeat inflation data favors the CME’s BOEWatch tool to propel the rate hike chances.

The same highlights today’s UK Manufacturing PMI for February, expected to match initial prints of 57.3, to keep buyers hopeful.

On the other hand, the US dollar tracks the US Treasury yield and inflation expectations to pare the previous losses. The US 10-year Treasury yields dropped the most since early December 2021 the previous day, up two basis points (bps) to 1.86% at the latest. That said, the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

Elsewhere, a pause in the EU’s funding to the British science studies, due to Brexit, joins a deadlock over the Northern Ireland (NI) border to test the GBP/USD bulls.

Talking about the Russia-Ukraine standoff, the peace talks ended without any update the previous day but have been kept on the table for discussion. Further, Russia’s criticism of the Western sanctions and aggression of military invasion inside Kyiv suggests that the geopolitical risks have miles to go before easing, which in turn underpin the US dollar’s safe-haven demand.

Looking forward, highlights today’s US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech will offer fresh impulse to the GBP/USD prices, in addition to the geopolitical and Brexit headlines.

Technical analysis

The cable pair’s latest struggle in keeping the rebound joins bearish MACD signals and the clear break of the previously important support lines and moving averages favor sellers.

However, a daily closing below the 61.8% Fibonacci retracement (Fibo.) of December-January upside around 1.3385 becomes necessary for the pair to aim for February’s low near 1.3275.

On the contrary, buyers may take interest should the latest recovery moves cross the 50% Fibo. level surrounding 1.3455.

US Senator from Connecticut Chris Murphy cites classified briefing on Ukraine crisis, in a series of tweets this Tuesday.

Key quotes

“Just leaving classified briefing on Ukraine crisis.

A few takeaways that I can share: 1/ Confirmation that the Russians have fallen behind their timeline. Ukrainian resistance has been fierce and there have been multiple Russian equipment and logistics failures.”

“2/ DoD and DHS are pressing hard for Congress to end the continuing resolution and get a budget passed. There is no way for our national security agencies to be nimble enough to support Ukraine if they are operating on the 2020/21 budget.”

“3/ The ability to keep supply lines running to Ukraine remains alive, but Russia will try to encircle and cut off Kiev in the next several weeks. The fight for Kiev will be long and bloody and Ukrainians are rapidly preparing for street-to-street combat.”

“4/ The U.S. and allies are coordinating to not only freeze the assets of Putin and his oligarch allies, but to seize those assets as well. This is likely a further step than Putin’s inner circle anticipated.”

Related reads

• US Officials: Russian Pres. Putin may order escalation of violence in Ukraine – NBC
• US Senator Rubio on Ukraine: Russia is moving to quickly choke off supplies to Kyiv

• AUD/JPY has slipped below 83.50 as RBA has maintained the status quo by keeping OCR unchanged at 0.10%.
• RBA’s decision is in-line with the market estimates of unaltered borrowing rates.
• China’s upbeat Caixin Manufacturing PMI may strengthen the aussie post the volatility of RBA’s decision.

The AUD/JPY pair has slipped from Monday’s high of 83.72, as the Reserve Bank of Australia (RBA) keeps its monetary policy unchanged, with OCR at 0.10%. The RBA has preferred to combat the turmoil from the Russia-Ukraine war rather than the soaring inflation.

The decision is in line with the market estimates. In the latest Feb. 18-24 Reuters poll, economists brought forward their rate hike expectations for a fourth straight month and expect the RBA to raise its key interest rate by 15 basis points to 0.25% in the July-September quarter.

Earlier on, the AUD/JPY pair was trading flat around 83.57 after easing from higher but held on its ground, awaiting the RBA’s monetary policy announcement to initiate further positions.

The cross showed a stabled upside move on Monday after a bearish gap opening led by peace talks between Russia and Ukraine towards a ceasefire. The chatters ended without any materialistic outcome. Although, the cross closed flat on Monday but pared its losses backed by optimism on the next round of Russia-Ukraine peace talks, which is due this week.

Meanwhile, China reported upbeat Caixin Manufacturing PMI at 50.4, higher than the previous print and market estimates of 49.1 and 49.3 respectively. This may help limit the losses in the aussie in comparison with the Japanese yen.

AUD/JPY Technical Analysis

On a four-hour scale, AUD/JPY is hovering around the trendline placed from January 05 high at 84.30. The 50-period and 200-period Exponential Moving Averages (EMA) are aiming higher and confirm the establishment of a bullish bias. The Relative Strength Index (RSI) (14) is oscillating in a range of 40.00-60.00, which indicates a consolidating move. However, a print above 60.00 will trigger bulls for further upside.

• USD/CHF consolidates the biggest daily fall in seven weeks between the key moving average, trend line.
• Bearish MACD, lower highs since January keep sellers hopeful.

Having dropped the most since mid-January the previous day, USD/CHF prints mild gains around 0.9190 during Tuesday’s Asian session. In doing so, the Swiss currency pair bounces off an upward sloping trend line from January 13.

However, the 200-DMA and 61.8% Fibonacci retracement (Fibo.) of January’s upside challenges the immediate advance of the pair around 0.9185.

Also favoring the USD/CAD sellers are the bearish MACD signals and the pair’s lower highs marked since January 31.

Hence, odds of a pullback towards the stated support line, near 0.9170 by the press time, can’t be ruled out.

Though, a clear downside past-0.9170 won’t hesitate to challenge February’s low of 0.9170.

Alternatively, recovery moves beyond 0.9185 will aim for the 50% Fibo. level near 0.9215.

It’s worth noting that a jungle of resistances will test USD/CHF buyers between 0.915 and 0.9300, beyond which the upside momentum to January’s peak of 0.9343 will become imminent.

USD/CHF: Daily chart

Trend: Pullback expected

• AUD/NZD bulls take a hit on a less hawkish RBA outcome. 
• Commodity-FX is getting support in general. 

AUD/NZD is a touch lower on the Reserve Bank of Australia's interest rate decision. At its meeting today, the Board decided to maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero per cent. At 1.0738, AUD/NZD is down some 0.18% and has marked a post went low of 1.0712 so far. 

In the details of the statement, the central bank says that ''the Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.''

Key notes

''We will not raise the cash rate until real inflation is consistently within the target range of 2% to 3%.''

''There are uncertainties about how persistent the pick-up in inflation will be... At the same time, wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target.''

''Inflation has picked up more quickly than the RBA had expected but remains lower than in many other countries... The CPI inflation rate will spike higher than this due to the higher petrol prices resulting from global developments.''

''The Australian economy remains resilient and spending is picking up following the Omicron setback... The resilience of the economy is evident in the labour market.''

Commodity-FX bid

Meanwhile, analysts at Rabonak explained that some of the specifics of this Ukraine and Russia conflict including the fears around the supply of various commodities, ''means that the winners and losers in the FX space are different than in previous crises.''

''Ordinarily, this would suppress demand and reduce risk appetite,'' the analysts noted. 

''Higher-risk currencies would tend to adjust lower in this environment and often this would include the currencies of commodity exporters.  However, Russia’s status as a large commodity exporter means that the threat of supply disruptions of oil, gas and various agricultural commodities has been amplified. The NOK has regained all the ground lost vs. the USD on the news of the invasion.''

''AUD, CAD and NZD are also recovering their poise vs. the mighty USD. The NOK and the CAD are the currencies of large oil exporters.  The AUD is usually well correlated with oil given its huge coal exports (which is a substitute good).  Australia also exports LNG. In the current environment, we expect the commodities currencies to remain well supported.''

• AUD/USD renews intraday low but stays near the four-day top after RBA.
• RBA holds benchmark rate unchanged, reiterates rejection for rate-hikes.
• Anxiety over Russia-Ukraine standoff challenges bulls, DXY tracks firmer yields to raise bars.
• US ISM Manufacturing PMI, Biden’s SOTU will join geopolitical headlines to direct short-term moves.

AUD/USD holds onto the early Asian session’s sluggish moves around 0.7250, recently easing towards an intraday low on Tuesday. The Aussie pair rose during the last two days before the Reserve Bank of Australia’s (RBA) sober comments probed the bulls.

The RBA matched wide market expectations of keeping the benchmark rate unchanged at 0.1%. However, the Aussie central bank’s comments rejecting the need for rate lifts seemed to have triggered the latest AUD/USD moves. “(The RBA) will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range,” per the RBA Statement shared by Reuters.

Read: RBA: Will not increase OCR until actual inflation is sustainably within 2%-3% target range

Earlier in the day, upbeat activity numbers from Australia and China favored AUD/USD bulls amid a pause in the risk-aversion wave. The reason could be linked to Ukraine-Russia talks that ended without any update the previous day but have been kept on the table for discussion. However, Russia’s criticism of the Western sanctions and aggression of military invasion inside Kyiv suggests that the geopolitical risks have miles to go before easing, which in turn tests the risk-barometer pair.

Additionally, challenging the AUD/USD prices is the firmer US dollar and the US Treasury yields. The US 10-year Treasury yields dropped the most since early December 2021 the previous day, up two basis points (bps) to 1.86% at the latest. The recent rebound in the Treasury yields could be linked to upbeat US inflation expectations. That said, the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, don’t comply with the recently easing Fed chatters as the gauge jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

Against this backdrop, S&P 500 Futures pause the three-day uptrend, down 0.08% by the press time, whereas Asia-Pacific stocks track Wall Street’s mixed performance of late.

To sum up, challenges to the market sentiment and the firmer King dollar tests AUD/USD buyers, which in turn highlights today’s US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech for fresh impulse.

Technical analysis

On Monday, AUD/USD printed the first daily closing above the 100-DMA level of 0.7237 in four months, which in turn joins firmer MACD signals to direct the bulls towards a downward sloping resistance line from mid-November 2021, around 0.7275 at the latest.

However, the pair’s further upside hinges on how well the quote crosses the 0.7275 hurdle. Hence, the AUD/USD prices are likely to remain sidelined between the 100-DMA and short-term key resistance line.

Following are the key headlines from the March RBA monetary policy statement, via Reuters, as presented by Governor Phillip Lowe.

• AUD/USD seesaws around 0.7250 on uneventful RBA, focus on news from Ukraine, Russia

The Reserve Bank of Australia (RBA) board members decided to keep the official cash rate (OCR) steady at a record low of 0.10% during their March 1 monetary policy meeting.

The RBA monetary policy statement read that the board is prepared to be patient while highlighting that the war in Ukraine is a major new source of uncertainty.

AUD/USD reaction

The AUD/USD pair keeps its range around 0.7255 in an immediate reaction to the RBA decision.

The spot was last seen trading at 0.7254, down 0.12% on the day.

About RBA rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

• USD/CAD bulls eye a mobe into test critical daily resistance. 
• The 38.2% Fibo is eyed for the days ahead. 

USD/CAD is steady in the Asian session as markets await the outcome of central bank meetings and the Ukraine crisis. The following is an illustration of the daily chart and prospects of a move into the neckline of the M-formation that has a confluence with the Fibonacci levels as follows:

USD/CAD daily chart

The price of USD/CAD is steadying in support territory and there could be a move higher at this juncture that would run into resistance, potentially near the 38.2% Fibonacci retracement level near 1.2740. Should the bears commit there and the bulls tire, then the support will be tested again and potentially give out for a downside extension to mitigate some of the old imbalance looking left. This leaves the 1.2550s vulnerable. 

“US intelligence agencies have determined that Russian President Vladimir Putin is growing increasingly frustrated by his military struggles in Ukraine, and may see his only option as doubling down on violence,” NBC News reports, citing current and former US officials.

The US officials noted: “As the Russian economy teeters under unprecedented global sanctions and his purportedly superior military force appears bogged down, Putin has lashed out in anger at underlings, even as he remains largely isolated from the Kremlin due in part to concerns about Covid"

Market reaction

Risk tone is souring over the last hour, as investors look to safety once again, as the S&P 500 futures drop 0.10% on the day.

AUD/USD is back in the red, closing in on 0.7250 support ahead of the RBA decision.

US Senator Marco Rubio, Vice Chairman of the Select Committee on Intelligence, tweeted out: “#Russia is moving to quickly choke off supplies to #Kyiv by sealing off the western part of the city Remember all the material being sent to #Ukraine has to come across the border and from the western part of the country.”

“No matter what happens #Putin loses His economy is melting down His military will continue to suffer historic losses And he will either be drained by a long protracted & costly occupation or leave behind a puppet government #Ukraine will overthrow,” Rubio tweeted earlier on.

Related reads

• S&P 500 Futures pause three-day uptrend, US T-bond yields pare losses amid Russia-Ukraine stand-off
• Russia’s Envoy: US declaration of 12 Russian diplomats as persona non grata is a hostile attack

• RBA is expected to leave the target cash rate at 0.10%.
• AUD risks are skewed higher if the outcome leans more hawkish than dovish.

The Reserve Bank of Australia is slated for 0330 GMT today where, although no changes to policy settings are expected with the target cash rate staying at 0.10%, the focus will be the rhetoric concerning the timing of the tightening cycle.

The fourth quarter '21 wages were in line with its forecasts and this likely means that the central bank will reiterate that it can be 'patient'.

''The Q4'21 wages outcome makes a Jun'22 hike less likely. It's more likely the RBA shifts to a hawkish stance at that meeting and delivers a hike in Aug as we expect,'' analysts at TD Securities said. 

How might the decision affect AUD/USD?

AUD risks are skewed higher if the outcome leans more hawkish than dovish, reflecting well-populated short positions which edged slightly lower according to the past Commitment of Traders report. The Aussie has been taking its cues from the external forces, such as higher inflation prospects, commodity prices and the Ukraine crisis. Risk has been mixed which has enabled the Aussie to chase higher levels at times of a recovery in the global stock markets.

Overall, the outcome would be expected to support AUD the Bank has just announced a move away from pandemic policy OMO settings. Moreover, Federal Reserve watchers have marked down their expectations of a 50bps hike at the forthcoming meeting which would be expected to keep a lid on the US dollar. 

On the 15-min chart below, we can see that there is scope for a move into the 0.7280s to mitigate the imbalance of price and likely higher from there...

AUD/USD daily chart's prospects are bullish at this juncture with the 0.7350s eyed. However, a drop below 0.7230 will put the barton in the bear's hands again. 

About the RBA

Decisions regarding this interest rate are made by the Reserve Bank Board, and are explained in a media release which announces the decision at 2.30 pm after each Board meeting.

“China has the ability and conditions to effectively respond to external shocks and domestic downward pressure, stabilizing the economy and inflation, and continue to be a bright spot in the global economy,” said the People's Bank of China (PBOC) said in an article posted on its social media account.

The PBOC added: “The prudent monetary policy will be flexible on its intensity and focus, aiming to maintain stability before seeking progress as well as guide banks to vigorously expand credit issuance, optimize credit structure and promote lower financing costs.

• AUD/JPY traders get ready for the RBA, supported in a risk-on environment.
• The RBA is universally expected to keep its cash rate at 0.1%.

AUD/JPY is holding on solid ground as markets get set for the Reserve Bank of Australia later today. At the time of writing, the cross is up some 0.20% on the day so far and firming on the prospects of peace talks resuming later this week between Russia and Ukraine. Additionally, the commodity currencies are getting a lift due to the inflation outlook and the likely hood of higher commodity prices.

In recent trade, Chinese economic data beat expectations which was a welcome surprise. ''Lower economic activity due to the Lunar New Year likely was expected to weigh on the PMis in Feb as factories shut for the holidays and workers return to their hometowns'', analysts at TD Securities explained. 

''Virus containment measures are likely to continue to weigh on the services sector which could offset any boost to consumption from the holidays. Further monetary easing ahead should help to support activity.''

Meanwhile, a modicum of calm returned to currency markets after officials from Russia and Ukraine held an initial round of ceasefire talks, four days after Russia invaded. In this regard, analysts at Rabobank explained that ''some of the specifics of this conflict including the fears around the supply of various commodities means that the winners and losers in the FX space are different than in previous crises.''

''Ordinarily, this would suppress demand and reduce risk appetite,'' the analysts noted. 

''Higher-risk currencies would tend to adjust lower in this environment and often this would include the currencies of commodity exporters. However, Russia’s status as a large commodity exporter means that the threat of supply disruptions of oil, gas and various agricultural commodities has been amplified. The NOK has regained all the ground lost vs. the USD on the news of the invasion.''

''AUD, CAD and NZD are also recovering their poise vs. the mighty USD. The NOK and the CAD are the currencies of large oil exporters.  The AUD is usually well correlated with oil given its huge coal exports (which is a substitute good).  Australia also exports LNG. In the current environment, we expect the commodities currencies to remain well supported.''

RBA outlook

The RBA is universally expected to keep its cash rate at 0.1%.  Traders will be looking to see if there is any shift in rhetoric concerning the timing of the tightening cycle.

• Market sentiment remains sidelined during Tuesday’s Asian session.
• S&P 500 Futures seesaw around intraday high but fails to extend previous three-day advances.
• US 10-year Treasury yields consolidate the biggest daily losses in three months.
• Russia criticizes Western Sanctions, bombards civilian buildings in Ukraine despite halted peace talks.

After the recently volatile trading days, global traders lacked direction during Tuesday’s sluggish Asian session as traders await key data/events.

While portraying the mood, the US 10-year Treasury yields rose 2.6 basis points to 1.865%, bouncing off the lowest level in a month, whereas the S&P 500 Futures take rounds to 4,370 following a three-day winning streak.

The recovery in the US Treasury yields could be linked to the upbeat US inflation figures as the price pressure gauge rallied to the highest in 14 weeks the previous day. The US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, don’t comply with the recently easing Fed chatters as the gauge jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session.

However, downbeat expectations from March’s Fed meeting and recently mixed Fedspeak tests the US bond bears. That said, the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

On a different page, Russia harshly criticizes Western sanctions while also escalating the invasion of Ukraine. Recently, US Republican Senator called for more sanctions for Russian oil companies while imagery company Naxar recently mentioned Russian troops' length of around 40 miles near Ukraine’s capital Kyiv.

On Monday, negotiations between Russia and Ukraine concluded without any core results, as expected. The diplomats assured further talks during this week but Moscow isn’t ready to step back as Russian troops bombard civilian buildings in Kyiv. On the other hand, Ukraine President Zelenskyy was quoted by Reuters’ reporter Phil Stewart to consider a no-fly zone for Russian missiles, planes and helicopters. The same would push the US to jump into the battle, as signaled earlier by the White House (WH). However, the WH press secretary Jen Psaki on Monday ruled out the idea of using US troops to create a no-fly zone over Ukraine amid the Russian invasion of the eastern European country.

Talking about data, China’s headline NBS Manufacturing PMI for February rose to 50.2 versus 49.9 expected and 50.1 prior. Further, the Non-Manufacturing PMI crossed 51.1 previous readouts with 51.6 figures for the stated month. Additionally, China’s Caixin Manufacturing PMI also rallied to 50.4 compared to 49.3 expected and 49.1 prior.

Looking forward, US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech will direct short-term market moves but geopolitical headlines will be the key to fresh impulse.

Chinese Commerce Minister expresses his take on the country’s consumption outlook, via Reuters.

Key quotes

“Some recovery momentum in consumption seen in February.”

“Must do everything possible to spur consumption this year.”

Related reads

• China's Caixin Manufacturing PMI expands to 50.4 in February, a big beat
• NZD/USD Price Analysis: Stays on the way to 0.6800 on upbeat China PMI

Russian Ambassador to Washington Anatoly Antonov said on Tuesday, Russia regards the US declaration of 12 Russian diplomats to the UN as persona non grata as a hostile attack.

On Monday, America announced it is expelling 12 Russian diplomats at the United Nations (UN) for undiplomatic activities.

Separately, it is being reported that Maxar satellite images show that the Russian military convoy north of Kyiv is considerably longer than the 17 miles initially reported, stretching approximately 40 miles.

Market reaction

The incoming Russia-Ukraine war headlines keep investors on the edge, reflective of the steady tone in the S&P 500 futures – the risk gauge.

Meanwhile, the fx space is consolidating the previous recovery, as the gaps were filled following a sharp sell-off at the weekly open on Monday.

US Republican Senator Lindsey Graham called on the Biden administration to impose sanctions on the Russian energy sector while at the same time ramping up the American energy production.

Key quotes

“We’re not using the energy sector as a weapon”

“We’re failing to hit (Russian President Vladimir) Putin where it hurts the most.”

Market reaction

The market mood remains cautiously optimistic, with hostilities still going on between Russia and Ukraine, despite the negotiations and the expected second round of talks in ‘the coming days.’

The Asian stocks are rebounding 0.80% to 1.50% while the S&P 500 futures are defending the bids around 4,375.

• NZD/USD seesaws above previously important resistance, recently off intraday low.
• Bullish MACD, daily closing beyond 15-week-old trend line hurdle favor buyers to aim for 100-day EMA.
• China’s NBS Manufacturing and Non-Manufacturing PMIs joined Caixin Manufacturing PMI to portray February’s recovery in key activities.

NZD/USD pares intraday losses a three-day top near 0.6780 during Tuesday’s Asian session.

The kiwi pair offered the first daily closing beyond a downward sloping trend line from mid-November the previous day. The resistance breakout gained support from China’s February PMIs to keep buyers hopeful. However, risk catalysts and the USD rebound seem to test the bulls.

That said, China’s headline NBS Manufacturing PMI for February rose to 50.2 versus 49.9 expected and 50.1 prior. Further, the Non-Manufacturing PMI crossed 51.1 previous readouts with 51.6 figures for the stated month. Additionally, China’s Caixin Manufacturing PMI also rallied to 50.4 compared to 49.3 expected and 49.1 prior.

Given the trend line breakout and firmer data from the key customer NZD/USD prices are likely to stay directed towards the 100-day EMA level of 0.6808.

However, a clear upside break of the stated EMA will enable the bulls to challenge January’s peak of 0.6891.

Alternatively, a daily closing below the stated resistance-turned-support line, near 0.6750 by the press time, could drag the quote toward the 23.6% Fibonacci retracement of October-January downside, near 0.6690.

It should be noted, however, that an upward sloping support line from January 28, close to 0.6670 at the latest, will challenge NZD/USD bears afterward.

NZD/USD: Daily chart

Trend: Further upside expected

China's February Caixin Manufacturing PMI came in at 50.4 vs. 49.3 expected and January’s 49.1, showing that the country’s business conditions improve slightly in the reported period.

Earlier on, China's official Manufacturing PMI expanded to 50.2 in February from 50.1 booked in January and against 49.9 expected, the National Bureau of Statistics (NBS) reported.

Comments from Dr. Wang Zhe, Senior Economist at Caixin Insight Group

“… manufacturing PMI came in at 50.4 in February, up from 49.1 the previous month, showing manufacturing activity bounced back into expansionary territory. Overall, the Chinese manufacturing sector stayed on the track for recovery.”

“Supply in the manufacturing sector improved. Overall demand was strong, though external demand remained subdued. The gauges for both output and total new orders returned to expansionary territory. The gauge for total new orders hit its highest level in eight months in February. Amid the worsening effects of the pandemic, which disrupted transportation, external demand remained weak. The gauge for new export orders in February remained in contractionary territory for the seventh straight month.”

Market reaction

AUD/USD eases slightly towards 0.7250 despite the upbeat Chinese PMI reports, trading at 7259, as of writing. The spot is almost unchanged on the day.

• AUD/USD consolidates recent losses at multi-day top, renews intraday low of late.
• China NBS Manufacturing PMI rose past market forecast, prior in February, Non-Manufacturing PMI improved too.
• S&P 500 Futures, US Treasury yields print mild gains amid lackluster markets, mixed updates concerning Russia-Ukraine.
• RBA is likely to keep the rate unchanged, US data, Biden’s speech will be important too.

AUD/USD extends bounce off intraday low to 0.7265 after China released upbeat activity data for February during Tuesday’s Asian session. In doing so, the Aussie pair rises for the third consecutive day.

China’s headline NBS Manufacturing PMI for February rose to 50.2 versus 49.9 expected and 50.1 prior. Further, the Non-Manufacturing PMI crossed 51.1 previous readouts with 51.6 figures for the stated month.

Earlier in the day, Australia's Current Account Balance for Q4 eased to 12.7B versus 14.9B forecasts and 23.9B prior. Further, Home Loans and Investment Lending For Homes flashed mixed numbers as the former eased to 1.0% whereas the latter rallied to 6.1% in January. Also from Australia were activity numbers from AiG and Commonwealth Bank (CBA) for February, both of which remained above 50.00 but the CBA gauge eased.

AUD/USD portrayed a heavy recovery on Monday as the risk-barometer pair not only filled the week-start gap but also refreshed multi-day high by the end of the day. The US dollar weakness and firmer gold prices could be linked to the quote’s latest gains. However, looming concerns over Russia and Ukraine join the market’s inflation woes to test the pair buyers of late.

The US Dollar Index tracked downbeat US Treasury yields to consolidate February’s gains during the last few days. US 10-year Treasury yields dropped the most since early December 2021 the previous day mainly due to the receding hawkish mood at the Fed and downbeat inflation expectations.

That said, US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, don’t comply with the recently easing Fed chatters as the gauge jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

Talking about geopolitics, imagery company Naxar recently mentioned Russian troops' length of around 40 miles near Ukraine’s capital Kyiv. On Monday, negotiations between Russia and Ukraine concluded without any core results, as expected. The diplomats assured further talks during this week but Moscow isn’t ready to step back as Russian troops bombard civilian buildings in Kyiv. On the other hand, Ukraine President Zelenskyy was quoted by Reuters’ reporter Phil Stewart to consider a no-fly zone for Russian missiles, planes and helicopters. The same would push the US to jump into the battle, as signaled earlier by the White House (WH). However, the WH press secretary Jen Psaki on Monday ruled out the idea of using US troops to create a no-fly zone over Ukraine amid the Russian invasion of the eastern European country.

Looking forward, AUD/USD traders will keep their eyes on the Reserve Bank of Australia’s (RBA) Monetary policy meeting as the Aussie central bank has repeatedly refrained from being hawkish despite reflation fears. Should the RBA reiterates the dovish bias, the risk-barometer pair may witness further downside.

Read: Reserve Bank of Australia Preview: Inflationary pressures and wage growth take center stage

Technical analysis

Despite the latest pullback from a downward sloping resistance line from mid-November 2021, around 0.7275 at the latest, AUD/USD stays beyond the 100-DMA level of 0.7237 for the first time in four months. Hence, the Aussie pair’s further selling hinges on a clear downside break of the key DMA.

China's official February Manufacturing PMI arrived at 50.2 vs the expected 49.9 while the Non-manufacturing arrived at 51.6 vs the estimated 50.7; prev 51.1. The Composite PMI Feb came as 51.2 (prev 51.0).

AUD/USD update

• AUD/USD Price Analysis: Bulls look to blow out consolidation’s range of 0.7255-0.7268

AUD/USD is relatively unchanged on the data as it takes its cues from the equity markets and updates surrounding the Ukraine crisis and facts on the commodity markets. AUD/USD holds near 0.7260 and near the top of the correction's range following the opening gap. 

Lower economic activity due to the Lunar New Year likely was expected to weigh on the PMis in Feb as factories shut for the holidays and workers return to their hometowns, analysts at TD Securities explained. 

''Virus containment measures are likely to continue to weigh on the services sector which could offset any boost to consumption from the holidays. Further monetary easing ahead should help to support activity.''

About the Manufacturing Purchasing Managers Index (PMI) 

The Manufacturing Purchasing Managers Index (PMI) released by the China Federation of Logistics and Purchasing (CFLP) studies business conditions in the Chinese manufacturing sector.

Any reading above 50 signals expansion, while a reading under 50 shows contraction. As the Chinese economy has an influence on the global economy, this economic indicator would have an impact on the Forex market.

One-month risk reversal (RR) of silver (XAG/USD) jumped the most since October 2021, on the monthly basis, by the end of Monday’s North American session, per the options market data on Reuters.

That said, the RR print flashed 1.075 figure for the latest monthly count, the highest since the month ended on October, 2021.

Silver’s price performance also justifies the options market’s optimism as the bright metal printed the biggest monthly gains since December 2020 during February.

However, the month-start consolidation of the recent gains joins the US dollar rebound to weigh on the XAG/USD prices, down 0.42% intraday around $24.35 by the press time of Tuesday’s Asian session.

Read: Silver Price Analysis: XAG/USD well supported above $24.50 as West hits Russia with new sanctions

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) 6.3014 vs last close 6.3100.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.

• EUR/USD is hovering around 1.1200 ahead of fresh impetus from the Russia-Ukraine tensions.
• Besides Russia, Europe looks to be the most impacted economy from the sanctions.
• Tuesday’s Manufacturing PMI from the US and Europe will remain under the radar.

The EUR/USD is trading lacklustre in the early Asian session on Tuesday as investors are waiting for fresh triggers from Russia’s invasion of Ukraine. The major has witnessed a principal jump on Monday after a bearish opening gap as the risk-off impulse kicks in after the peace talks between Moscow and Kyiv.

The geopolitical tensions between the Kremlin and Ukraine have impacted the economics of Europe. The European economy seems moving into recession amid the sanctions on Russia and likely subdued demand. The latter has been cut off from the SWIFT international banking system, which has caused disruption to its oil exports.

It is worth noting that Europe augments its 40% of natural gas demand from Russia only and more than a quarter of the oil imports. Therefore, the largest impact of imposing sanctions on Russia will be faced by Europe.

The sanctions imposed on Russia are likely to worsen the already soaring inflation in Europe. Therefore, the European Central Bank (ECB) will remain in dilemma whether to hike interest rates to combat the rising inflation or to deploy a dovish stance to counter the expected recession.

The US dollar index (DXY) seems to build some grounds near 96.75 till further updates from the Russia-Ukraine war.

Apart from the headlines of the Russia-Ukraine war, investors will focus on the Manufacturing Purchasing Managers Index (PMI) data by the Institute for Supply Management (ISM) and Euro Manufacturing Purchasing Managers Index (PMI) from the HIS Markit, which are due on Tuesday.

There are reports that US Satellite Image Company Maxar has shown images of the Russian military convoy near Kyiv that stretches approximately 40 miles. However, the BBC reports images that have shown the convoy is half of that length:

''A huge convoy of Russian armour, nearly 17 miles long, is advancing on Ukraine's capital Kyiv, satellite images show.''

The air-raid sirens are sounding off for the 6th day with reports of a Russian strike on the outskirts of the city.

More to come...

• US Dollar Index retreats from short-term key resistance but bulls keep reins.
• 21-DMA, 13-day-old support line restricts nearby downside, 95.45 becomes crucial support.
• June 2020 peak adds to the upside filters beyond the latest top.

US Dollar Index (DXY) bulls seem running out of steam as the quote remains dull around 96.75 during Tuesday’s Asian session, easing from a five-month-old rising wedge’s upper line of late.

The pullback moves, however, fail to gain support from the MACD, which in turn signals limited downside.

Hence, a convergence of the 21-DMA and a two-week-old rising support line, near 96.00, will challenge the US Dollar Index bears.

It should be noted that the stated wedge’s support line, around 95.45 by the press time, becomes crucial for the DXY sellers as a break of which will challenge the latest uptrend.

On the contrary, the 97.00 threshold and an aforementioned resistance line of the wedge, near 97.40, will question the short-term rebound of the greenback gauge.

Following that, the recent high and tops marked during the mid-2020, near 97.75 and 97.80, will challenge the US Dollar Index bulls.

DXY: Daily chart

Trend: Pullback expected

• USD/JPY prints mild gains to snap two-day losing streak, recently easing from intraday top.
• US Treasury yields dropped the most in three months the previous day.
• Russian invasion of Ukraine intensifies despite extended peace talks.
• No major data from Japan but US ISM Manufacturing PMI, Biden’s speech will decorate calendar, geopolitics is the key.

USD/JPY retreats from intraday top surrounding 115.10 as Tokyo opens for Tuesday. Even so, the yen pair remains mildly bid by the press time, posting the first daily gains in three.

The reason could be linked to the US Treasury yields’ pause after the previous day’s heavy downside, as well as mixed concerns over the Russia-Ukraine issues and a lack of major data/events during the initial Asian session.

US 10-year Treasury yields dropped the most since early December 2021 the previous day, which in turn weighed on the US Dollar Index (DXY).

The fall in the US bond yields can be well connected to the receding hawkish mood at the Fed and downbeat inflation expectations. That said, US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, don’t comply with the recently easing Fed chatters as the gauge jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days.

Elsewhere, negotiations between Russia and Ukraine concluded without any core results, as expected. The diplomats assured further talks during this week but Moscow isn’t ready to step back as Russian troops bombard civilian buildings in Kyiv. On the other hand, Ukraine President Zelenskyy was quoted by Reuters’ reporter Phil Stewart to consider a no-fly zone for Russian missiles, planes and helicopters. The same would push the US to jump into the battle, as signaled earlier by the White House (WH). However, the WH press secretary Jen Psaki on Monday ruled out the idea of using US troops to create a no-fly zone over Ukraine amid the Russian invasion of the eastern European country.

Amid these plays, the US 10-year Treasury yields seesaw around 1.84%, the lowest level in a month whereas the S&P 500 Futures print mild gains at the latest.

Looking forward, China and the US PMIs for February will precede US President Joe Biden’s State Of The Union (SOTU) speech to direct short-term USD/JPY moves. Above all, geopolitical headlines will be the key to fresh impulse.

Technical analysis

Although pullback from “double-tops” marked around 116.35 keeps USD/JPY sellers hopeful, a convergence of the three-month-old support line and the 100-DMA, near 114.40, appears a tough nut to crack for the bears.

• Gold is firm as risk-off favours the safe-havens. 
• The hourly chart offers a trapped bias between the trendline support and the overhead resistance near $1,920. 
• Gold: Volatility to continue as investors stay on edge

The Gold price has rallied as demand for safe-haven assets remained strong. Spot gold rose 0.6% to $1,898.25 per ounce, after gaining as much as 2.2% earlier in the session. US gold futures settled up 0.7% at $1,900.70.  Gold, often used as a safe store of value during times of political and financial uncertainty, has risen about 6.5% in February, having soared to an 18-month high of $1,973.96 last week.

Russia's ongoing attack on Ukraine weighed on risk and US and European equities as well as bond yields. Investors are wrestling with uncertainty and bank stocks dropping following powerful Western sanctions against Russia as it continued its invasion of Ukraine. The DJI and S&P 500 fell, but the Nasdaq managed to claw its way to a gain.

US bond yields fell and the curve steepened as the events unfolding in Ukraine continues to dominate global risk sentiment. The 2-year government bond yields dropped from 1.57% to 1.43%, and 10-year government bond yields fell from 1.95% to 1.85%.

Buying of physical gold expected to rise

Buying of physical gold is also expected to rise. The Russian central banks said it would resume its gold purchases after a two-year pause. 

''Russia holds nearly 2300 tonnes of gold worth nearly USD140billion in their FX reserves, representing 22% of FX reserves as of their latest filings from November 2021,'' analysts at TD Securities explained.

''While that estimate is defined as gold in vaults, en route, in allocated and unallocated accounts including those that are held abroad, the Bank of Russia's annual report suggests that precious metals are stored in the territory of the Russian Federation. In turn, this gold could theoretically be used to skirt SWIFT sanctions, but it's not clear how immediately effective this route will be.''

''After all, these sanctions will eliminate location swaps, which will restrict trading with most counterparties. The gold would therefore have to be physically shipped to a destination that would be willing to purchase it, suggesting some form of discount to the war-chest, which blurs the implications for global gold prices.''

A gold top could be in the offing

The analysts, however, expect that a top could be in the offing.

''The evidence continues to support our view that CTA trend followers may have bought the top in gold. With the event risk now largely behind us, barring a significant escalation, safe-haven flows might show signs of easing.''

''Whether a sustainable bid can appear will depend on the implications of this conflict for the Fed's decision-making. After all, the event is globally stagflationary, but implications for US growth are milder outside the inflation channel, which augments the uncertainty surrounding the Fed's reaction function.''

Gold technical analysis

The hourly chart offers a trapped bias between the trendline support and the overhead resistance near $1,920. Meanwhile, the W-formation is pulling in the price towards the neckline near $1,901. 

• AUD/USD is eyeing 0.7314 amid a positive tone in the market.
• The RSI (14) is oscillating in a range of 60.00-800, which adds to the upside filters.
• Bulls need to surpass 0.7268 for a fresh rally ahead.

The AUD/USD pair is trading back and forth in a narrow range of 0.7255-0.7268 in the Asian session. The major has witnessed a juggernaut rally after breaching the symmetrical triangle (placed between lower trendline from Friday’s low at 0.7140 and upper trendline from Thursday’s high at 0.7285) on Monday. Usually, a symmetrical triangle denotes a slippage in the standard deviation in the early stage and hence followed by a breakout in the same.

On a 15-min scale, AUD/USD is juggling in a narrow range after a ramp-up move towards the north, which hints at a build-up of significant bids by investors who failed to initiate long positions in the previous rally.

The Relative Strength Index (RSI) (14) is oscillating in a range of 60.00-80.00, which indicates the strength of bulls and adds to the upside filters.

 The 50-period and 200-period Exponential Moving Averages (EMA) are scaling higher and confirm the establishment of a bullish bias.

Considering the ongoing price action and upside filters, a further upside move on Tuesday cannot be ruled out.

For an upside, bulls need to overstep the consolidation’s highest offered price at 0.7268, which may send the major higher towards Thursday’s high at 0.7285 and January 13 high at 0.7314 respectively.

On the flip side, bears can take control, if the spot slips below consolidation’s low at 0.7255 towards Friday’s high at 0.7238, followed by the 200-EMA at 0.7218.

AUD/USD 15-minute chart

• USD/CHF is eyeing 0.9150 as investors underpin the risk-off impulse post the Russia-Ukraine peace talks.
• The outperformance of Swiss Retail Sales has supported the Swiss franc.
• The headlines from the Russia-Ukraine war will remain a key driver going forward.

The USD/CHF pair has plunged on Monday after the ultra-hot volatile market cools off after a broad-based buying in the global markets. USD/CHF is juggling near 0.9170 on Tuesday but is expected to extend losses after slipping below Tuesday’s low at 0.9165.

The market has remained vulnerable for risk-sensitive assets amid the ongoing war between Russia and Ukraine, which has caused death and destruction in Ukraine. The Western leaders have imposed a spree of sanctions on the Moscow post the expansion of Russian military activities on Ukraine. Russia has been isolated by cutting it off from the SWIFT international banking system. Additionally, the EU and U.S. announced moves that effectively froze over half the extent of the Russian Central Bank's foreign reserves, as per Reuters. This has intensified a threat of recession in Europe, which is why the safe-haven appeal has remained underpinned.

However, the global sell-off of risk-sensitive assets has rebounded after the peace talks between Moscow and Ukraine at the Belarusian border. Although, there has been no positive outcome yet and the nations will discuss the negotiations again but agreement on peace talks has established grounds towards a ceasefire.

Moreover, the yearly Retail Sales released by the Swiss Federal Statistical Office on Monday has increased to 5.1%, much higher than the previous print of (0.5), which has also underpinned the Swiss franc against the greenback.

Meanwhile, the US dollar index (DXY) is gauging support around 96.75 but looks to plunge further amid fading risk-aversion theme.