CFD Markets News and Forecasts — 17-02-2022

• USD/JPY hit as investors raise bets on the Japanese yen over the greenback amid the risk-aversion theme.
• The DXY struggles to find any direction after the US Initial Jobless Claims surge
• Japan’s National Consumer Price Index will be under the radar for further guidance.

The USD/JPY pair has sensed selling pressure from 115.00 in the early Asian session. It seems that the pair is continuing the negative cues of Thursday. USD/JPY has been beaten hard by the bears on Thursday, as the market participants underpin the Japanese yen over the greenback after the geopolitical tensions escalate.

The rising geopolitical fears over the Russia-Ukraine tussle have raised the demand for safe-haven assets to coincide with the risk-aversion theme. Investors are nervous over the obscurity of the Russia-Ukraine fears and are banking upon defensives to combat the uncertainty.

Meanwhile, the US dollar index (DXY) is trading in a limited dimension within 95.70-95.88 on weak performance from the US Initial Jobless Claims (IJC) data by the Department of Labor. The US IJC remains at 248k, well above the market estimates and the previous print has modestly diminished the highly likely hawkish stance from the Federal Reserve (Fed) in the March’s Monetary Policy Committee (MPC) meeting.

The headlines from the ongoing geopolitical tensions between Russia and Ukraine will keep USD/JPY active as investors will continue to adjust their positions as per the developments. Adding to that, the Statistics Bureau of Japan will report yearly National Consumer Price Index (CPI) data, which is likely to grind lower at 0.6% against the previous print of 0.8%.

USD/JPY Technical Analysis

On a four-hour scale, USD/JPY had slipped below Monday’s low at 115.01, which was also tested last week. This would act as a resistance for the next trading sessions and more likely the pair would establish lower. The Relative Strength Index (RSI) (14) has tumbled below 40.00, showing no signs of divergence and oversold.

USD/JPY four-hour chart

• The AUD/JPY advances so far in the week, some 0.30%.
• Risk-aversion in the financial markets caused the AUD/JPY retracement from 83.00, as tensions in Ukraine/Russia increased.
• AUD/JPY is neutral biased, but failure at 83.00 seems to form a double-top that would target 80.00.

The AUD/JPY retreats from weekly tops in the North American session, down some 0.59%. At press time, the AUD/JPY is trading at 82.57. Risk-aversion looms the financial markets. Russia/Ukraine tensions remain “high” as diplomats have been unable to reach an agreement in their negotiations.

The AUD/JPY rallied 150 pips in the week, despite a risk-off market mood in the financial markets, led by global equities. However, on Thursday, a headline of the Russia/Ukraine conflict caused a 90-pip drop in the pair in one hour.

AUD/JPY Price Forecast: Technical outlook

Timeframe: Daily chart

The AUD/JPY is neutral biased, though slightly tilted to the upside, by the location of the daily moving averages (DMAs) below the exchange rate, except for the 100-day moving average (DMA) at 82.72. However, the failure of AUD/JPY bulls at 83.00 exposed the pair to downward pressure.

Also, the confluence of the last two cycle highs around 83.00 depicts the formation of a possible “double-top” that will target 80.00, but it would find some hurdles on the way south.

The AUD/JPY first support would be the confluence of the 50 and the 200-DMA at 82.33-36 area. Breach of the latter would expose 82.00, followed by February 14 daily low at 81.55, and the January 28 daily low at 80.36.

• Gold holds near the fresh cycle highs of $1,900, driven higher by the Russian and Ukraine crisis.
• US dollar pinned to the floor as markets reassess Fed's tightening path. 

The price of gold rallied on Thursday and was coming to a close near the highs of the day of $1,901 at $1,898, ending up over 1.54%. The uncertainty surrounding the Russian NATO crisis over Ukraine appears to be generating solid demand for gold as a haven, despite the risks to the yellow metal of substantially higher real rates amid a hawkish central bank regime.

The US dollar index was little changed on Thursday though as investors weighed comments made by NATO allies and officials that sent the message to the market that war appeared imminent after shelling on the Ukraine front line. Against a basket of its rivals (DXY), the US dollar was ranging between 95.71 and 96.10. However, stocks on Wall Street were battered with the S&P 500 losing 2.1% to 4,380.26, the Nasdaq Composite sliding 2.9% to 13,716.72 and the Dow Jones Industrial Average was falling 1.8% to 34,312.03, its biggest loss in 2022.

Investors continue to see a high probability of a 50 basis point hike at the Federal Reserve's March meeting. However, money markets were pricing in a 72% likelihood of a 50 bps rate hike next month compared to 80% at the start of the week which likely weighed on the greenback. The 10-year US Treasury yield also sank 8 basis points to 1.96%. 

Are trend followers accumulating at the top?

This was the title given to a piece written by analysts at TD securities who, at the core, are bearish on gold.''Precious metals funds are finally seeing an increase in fund flows year-to-date, as participants accumulate positions since early February to hedge against geopolitical risk. How sustainable is this demand if this geopolitical risk event subsides?'' the analysts wrote. ''This question is key to our view for gold prices to consolidate under the weight of a hawkish Fed.''

''Traders should recall that geopolitical risk also carries a heavy time decay, suggesting as the Russia risk premium could be wiped clean as soon as next week if troops head home. Ultimately, we still don't find evidence of sustained buying behaviour, suggesting that gold could simply have been buoyed by a large one-off purchase, followed by a safe-haven bid amid these tensions, which has catalyzed a CTA buying program.''

Gold technical analysis

The price is attempting to break into the longer-term resistance on the daily chart. If the price fails to move through the May 2021 highs, then the focus will be back towards the $1,880's and lower with the 61.8% golden ratio in mind. 

• GBP/USD tumbles to 1.3614 after investors prefer defensives over risk-sensitive forex.
• The rising geopolitical tensions between Russia and Ukraine have kept the market on its toes.
• The DXY has been capped after a poor show from the US Initial Jobless Claims.

The GBP/USD pair has attracted some offers in the US session around 1.3630, as the geopolitical tensions between Russia and Ukraine renew after the shelling between Ukraine armed forces and pro-Moscow rebels across a ceasefire line in eastern Ukraine.

After the ceasefire, US President Joe Biden mentioned that there were some signifiers that Vladimir Putin’s area was conspiring of invasion to Ukraine in the next few days along with a pretext for the same.

Russia accused Biden of stoking tensions and released a strongly worded letter saying Washington was ignoring its security demands and threatening unspecified "military-technical measures", as per Reuters.

This has renewed the risk-aversion theme in the market as investors are cautious over escalating geopolitical tensions, which has raised the appeal for safe-haven assets.

Meanwhile, the US dollar index (DXY) is juggling in a narrow range of 95.70-95.88 since the start of the New York session. It would be justified to state that rising Initial Jobless Claims in the US has capped the DXY. The US Department of Labor has reported that the Initial Jobless Claims land at 248k, higher than the previous print of 225k and market estimates of 219k, which could dictate a less hawkish stance from the Federal Reserve (Fed) in the March’s Monetary Policy Committee (MPC) meeting.

For further guidance, speech from the Cleveland Fed’s Mester on Thursday and British Retail Sales data from the Office for National Statistics on Friday will remain in focus while the headlines from the Russia-Ukraine tussle will remain the major driver.

• The NZD/JPY advances so far in the week 0.27% amongst a risk-off market mood.
• Risk-sensitive currencies depreciate as investors scramble towards safe-haven assets but the US dollar.
• NZD/JPY is neutral-downwards after printing a daily close below 77.00.

The NZD/JPY, one of the barometers of market mood in the FX space, drops 0.25% in the North American session among increasing tensions between Russia and Ukraine. At the time of writing, the NZD/JPY is trading at 76.90.

The financial market mood is downbeat, portrayed by US equities remaining in the red. In the FX complex, risk-sensitive currencies like the NZD, the AUD, and CAD fall, while safe-haven peers rise.

On Thursday, the NZD/JPY was headed for a third consecutive day of gains, but headlines from Eastern Europe sent the pair on a free-fall from 77.38 to 76.69, a 70 plus pip fall. Since then, the NZD/JPY seesawed between the daily pivot and the February 16 daily high at 76.96-77.20 before printing five consecutive 1-hour candlesticks below 77.00.

NZD/JPY Price Forecast: Technical outlook

Timeframe: Daily chart

The NZD/JPY is neutral biased but tilted downwards, now that the exchange rate is under the 50-DMA, leaving all the DMAs above the spot price. Furthermore, a seven-month-old upslope trendline, broken upwards, turned resistance, as the NZD bulls could not reclaim 77.00, reinforcing the bias.

Therefore, the NZD/JPY first support level would be the 76.60 psychological figure. Breach of the latter would expose the February 14 daily low at 75.87, followed by February 3 75.59.

• US equity markets were under pressure on Thursday, with all major US indices dropping more than 1.0%.
• Markets fell as Russia/Ukraine/NATO tensions continue to escalate against the backdrop of uncertainty about the timeline of Fed tightening.
• The S&P 500 fell 2.0% to back below 4400.

US equity markets were under pressure on Thursday, with all major US indices dropping more than 1.5% on the day as Russia/Ukraine/NATO tensions continue to escalate against the backdrop of uncertainty about the timeline of Fed tightening. The S&P 500 shed 2.0% to drop under the 4400 level once more, with the bears now eyeing a test of Monday’s lows in the 4360s, while the Nasdaq 100 dropped 2.9% and the Dow dropped 1.8% to hit fresh lows for the week in the 34,300s. The S&P 500 CBOE Volatility Index rose over three points to the mid-27.00s but was still substantially lower than Monday’s highs at 32.00.

Renewed fighting broke out on Thursday between Russia-backed separatist forces and the Ukraine military in the Eastern Ukraine Donbas region as NATO leaders continued to sound about a potential Russian invasion as the country continued to amass troops. Meanwhile, Russia released its response to US security proposals, criticising the country for not taking its concerns seriously and expelled the US Deputy Ambassador from Moscow. NATO leaders warned that Russia is looking to find a pretext/excuse to take military action against Ukraine and investors are fearful of how any subsequent NATO sanctions against Russia might impact the global economy.

Against the backdrop of already high inflation and further warnings from hawkish Fed policymaker James Bullard on Thursday that the Fed should prepare for the possibility of longer-lasting inflation, the risk that Russian commodity export bans trigger a fresh round of global inflation is a worrying prospect. Further Fed speakers will orate on Friday, including influential policymakers including Fed Vice Chairwoman Lael Brainard and NY Fed President John Williams. Traders will be on the lookout for anything that might suggest the Fed is willing to go big with a 50bps rate hike in March, after the minutes of the latest Fed meeting (released on Wednesday) contained no such bombshells.

• Bulls moving in at a 4-hour 50% mean reversion mark.
• The is a risk of a significant move to the downside if 0.6680 is broken. 

As per the prior analysis, NZD/USD flying towards 0.67 the figure despite Russia angst, the bird crept higher for a deeper test of the M-formation's neckline. 

NZD/USD prior analysis

As can be seen in the chart above, the price was moving higher with a bullish conviction for the week. Despite the ebbs and flows of risk sentiment supporting Russia, the bird has managed to hold onto the bulls and keeps rising:

NZD/USD H4 chart

The bulls may start to look to jump in again at a discount from the 50% mean reversion mark for the sessions ahead. If not, then there is a considerable risk of a significant move to the downside if 0.6680 is broken. 

• The Australian dollar is up 0.69% in the week, despite the Russia/Ukraine conflict.
• The AUD/USD needs to break above the 0.7200-0.7240 to shift the bias to neutral-upwards.
• The AUD/USD is neutral-downwards, but upside risks remain.

On Thursday, during the New York session, the AUD/USD reached a daily high at 0.7217, followed by a drop below a four-month-old downslope trendline, sparked in part by geopolitical headlines, alongside the former, retracing under 0.7200. The AUD/USD is flat at press time, trading at 0.7193.

During the week, the AUD/USD began on the wrong foot but recovered on Tuesday, when the three-day rally commenced. On Wednesday, the upward break of the 50-DMA at 0.7169 ignited a move towards 0.7200, but AUD bulls fell short of it, stalling at the four-month-old aforementioned trendline around 0.7204.

On Thursday, AUD/USD bulls launched an attack but retreated 80-pips on a Russia/Ukraine headline and could not reclaim the 0.7200 mark.

AUD/USD Price Forecast: Technical outlook

Timeframe: Daily chart.

The AUD/USD is neutral biased, slightly tilted to the downside, facing a wall of solid resistance levels in the 0.7200-40 area. Breach of the latter would expose the January 20 daily high at 0.7257, followed by the January 13 at 0.7313.

However, the AUD/USD path of least resistance is downwards. The first support would be the 50-DMA at 0.7170. A clear break would send the pair tumbling to February 14 daily low at 0.7085, followed by the February 4 daily low at 0.7051.

What you need to know on Friday, February 18:

Ukraine-Russia conflict continued to dominate the headlines and fueled demand for safe-haven assets, although speculative interest stood away from the greenback. Major pairs remained stable within familiar levels after both countries blamed each other for some shelling that took place early on Thursday in the Donbass territory.

The situation escalated as the day went by, resulting in broken diplomatic talks. Western nations believe that not only Russia is not retreating but preparing for an invasion. Russia ejected US officials from their embassy and accused Washington of ignoring its security demands, while US President Joe Biden accused Moscow of creating drama to justify an invasion.

Also, the US Secretary of Defense reported that Russian forces are moving closer to the Ukrainian border wh le. US Ambassador to the UN noted the"t: "the evidence on the ground is that Russia is moving toward an imminent invasion. This is a crucial moment."  

Gold benefited the most from the risk-averse environment, trading at its highest since June 2021 at around $1,900.00 a troy ou e. The GBP/USD pair managed to extend gains beyond the 1.3600 level, but  EUR/USD remains stuck at around 1.1350.

The CHF and the JPY reached fresh weekly highs against their American rival amid demand for safety, while commodity-linked currencies remained around their opening levels.

Crude oil prices ticked lower, dragged by the sour tone of equities, and WTI trades at around $91.40 a barrel.

Asian and European equities closed mixed, but US indexes remain in the red heading into the close. Government bond yields, on the other hand, edged lower amid increased bonds demand.

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Investors spooked by renewed geopolitical tensions

• EUR/JPY dipped back to the 130.50s on Thursday as the yen outperformed on rising Russia/Ukraine geopolitical concerns.
• Shelling in Ukraine’s Eastern Donbas region has reportedly restarted as NATO warns Russia continues to amass troops on Ukraine’s border.
• If geopolitical tensions continue to rise, traders will eye a test of weekly lows in the 130.00 area. 

Having nearly hit 132.00 on Wednesday on hopes that Russia would follow through with pledges to withdraw troops from the Ukrainian border, EUR/JPY has reversed sharply lower on Thursday and now trades in the 130.50 region. That means the pair is back to trading within about 0.4% of Monday’s lows just to the north of the key 130.00 level and is down more than 1.0% from Wednesday’s weekly highs. Shelling between the armed forces of Ukraine and pro-Russia separatist forces in Ukraine’s Eastern Donbas region has reportedly resumed against the backdrop of Russia continuing to amass troops near Ukraine’s border.

Indeed, on Thursday various top NATO member nation leaders further amplified their warnings that a Russian invasion of Ukraine could be imminent. NATO leaders have also been warning that the country may be looking to stage some sort of false flag event to use as a pretext to invade and fighting in Ukraine’s East could provide such an opportunity. Amid fears of war and worsening NATO/Russia ties, risk assets have by and large been on the back foot, with the S&P 500 dropping 1.8%. This has meant that in FX markets, the yen has been an outperformer.

That partly explains why EUR/JPY has dipped on Thursday, though when NATO tensions with Russia rise, that has led to euro underperformance recently, which is another important factor. Traders fret that the Eurozone economy is vulnerable to a Russian retaliation if NATO puts sanctions on Russia for invading Ukraine, including potential disruptions to gas imports. For the most part, ECB speak from the likes of Spain’s Pablo de Cos (who was dovish) and Ireland’s Philip Lane (who was neutral) has not shifted the dial for EUR/JPY on Thursday. Traders might expect the pair to test weekly lows near 130.00 if geopolitical tensions continue to escalate, with a break below opening the door to a potential run towards annual lows in the 128.00s.

• Weekly inverse H&S is in the making for a bullish continuation.
• GBP/JPY bulls looking for a close above 157.00 for conviction. 

GBP/JPY is pressing up against the weekly neckline of the inverse head and shoulders, although the Russian risk is preventing bulls from breaking higher on lower time frame advances. Nonetheless, a weekly bullish candle close on Friday will leave the bulls in good stead for the foreseeable future:

GBP/JPY weekly chart

The inverse head and shoulders is a bullish chart pattern, although arguably, the formation is not as symmetrical as investors might wish to see. With that being said, the principal objective is for there to be demand on the way up to carry the price over the line which is seen in the build-up from December's rally.

The correction was met with strong demand in the first instance. However last week was a weaker close. Bulls will be prudent to wait to see how the next days play out and a close above 157.00 would be encouraging. 

• USD/CAD saw choppy trading conditions on Thursday and is back to flat around 1.2680 having been as high as 1.2734.
• Geopolitics remains the main talking point in the market, with investors jittery as NATO/Russia relations sour, shelling resumes in Ukraine.

USD/CAD saw choppy, indecisive trading conditions on Thursday, at one point rallying as high as the 1.2730s where it was, at the time, trading higher by about 0.4%, before pulling back to trade flat in the 1.2680s in recent trade. Geopolitics remains the main talking point in the market right now, with investors jittery at the prospect that shelling between Ukraine armed forces and pro-Russia separatists across a ceasefire line in Eastern Ukraine escalates into a broader Russia/Ukraine conflict. NATO leaders further amplified their warnings that Russia looks to be on the verge of military action against Ukraine and warned that the country is looking to fabricate a pretext for invasion.

These fears are currently weighing heavily on the global equity space, but FX markets have been mostly able to resist the risk-off flows seen in other asset classes on Thursday. That could be because Wednesday’s Fed meeting minutes, as well as Thursday’s weaker than expected weekly jobless claims and February Philadelphia Fed manufacturing, have dampened the US dollar’s safe-haven appeal for now. But following recent upside inflation surprises and further hawkish commentary from Fed’s James Bullard, traders will be closely watching what other Fed policymakers have to say in the coming days.

Any indications for support for a 50bps hike in March, combined with ongoing geopolitical risk-off could help push USD/CAD back above 1.2700 again before the week is out. Note, however, that the loonie’s high correlation to crude oil prices, which would be expected to rally on a Russian invasion of Ukraine, means that in a flight to FX havens, it wouldn’t perform as poorly as some risk-sensitive peers. A retest of this year’s triple-top in near 1.2800 seems unlikely if, say, a Russia/Ukraine conflict was to send WTI above $100.

According to Fox News, shelling in the contested Donbas region of Eastern Ukraine between the armed forces of Ukraine and pro-Russia separatists has resumed. The report cited how Russia is building a bridge close to the Ukrainian border and building up blood supplies, presumably as it prepares for battle. 

Market Reaction

The latest reports of shelling haven't had a market impact, but US equities continue to trade with a strongly risk-off bias amid continued concerns about escalating geopolitical tensions, with the S&P 500 trading near lows of the day just above 4400, down about 1.4% on the day. 

• On Wednesday, the UK’s Office of National Statistics (ONS) revealed higher than expected inflation figures.
• The conflict between Russia and Ukraine weighed on the single currency.
• The EUR/GBP breach of 0.8345 would exacerbate a fall towards 0.8300.

On Thursday, as the American session progresses, the EUR/GBP drops for the second consecutive day in the week, trading at 0.8338 at the time of writing. The financial market mood remains sour, with no de-escalation of the conflict between Russia and Ukraine in eastern Europe, a headwind for the EUR.

Also, UK’s inflation revealed on Wednesday increased at the fastest annual pace in 30 years, increasing the odds of another rate hike of the Bank of England on its next meeting. The UK Consumer Price Index (CPI) increased to 5.5% in January, the highest since March 1992. Money market futures expect the BoE’s interest rates to rise to 2% by the end of 2022.

An EU absent economic docket left adrift EUR/GBP traders to ECB speakers, led by Chief Economist Philip Lane. He said tightening conditions would be met if inflation remained above the 2% target over the medium term while ensuring to “not over-react” to high near-term inflation, which could induce excessive monetary tightening, pushing inflation persistently below the 2% target over the medium term.

Those factors were a headwind for the EUR/GBP, as more ECB policymakers pushed back higher rates, without expressing it directly. Meanwhile, the Bank of England would keep tightening monetary policy conditions, favoring the GBP vs. the EUR in the near term.

EUR/GBP Price Forecast: Technical outlook

The EUR/GBP stalled its rally two days ago at the 50-day moving average (DMA) at 0.8400. Since then, EUR/GBP sellers entered the market, pushing the pair to fresh weekly lows at 0.08333, leaving the 0.8345 weekly support behind.

Therefore, the EUR/GBP is downward biased, and its first support level would be the January 20, daily low at 0.8304, near the 0.8300 psychological figure. Breach of the latter would expose the YTD low at 0.8283.

Spot gold (XAU/USD) prices hit $1900 per troy ounce for the first time since June 2021 on Thursday, taking its on-the-day gains to more than 1.5% as geopolitical tensions between Russia, Ukraine and NATO simmer, stimulating demand for safe-haven assets. Gold now trades more than 2.0% higher on the week, taking its two-week run of gains to nearly 5.0%.

Fears of an imminent Russian military incursion into Ukraine have escalated in recent days, with reports of shelling in the war-torn Donbas region of Eastern Ukraine on Thursday sparking fears that Russia is looking to create a pretext for military action, as the country continues to amass troops near the Ukrainian border. 

A positive technical backdrop has coincided with the increased safe-haven demand for gold; XAU/USD broke above a key long-term pennant structure at the end of last week. This week it fell back to the $1850 area to test the old long-term pennant and, promisingly for the bulls, found strong support. The bulls will now likely target a move above $1900 and towards the mid-2021 highs in the $1915 area.

• The EUR/USD fluctuated during Thursday’s session but remained up 0.14% in the week.
• Risk-aversion in the financial markets remains unless tensions between Ukraine and Russia ease.
• EUR/USD is neutral biased, but downward risks remain as long as the pair stays under 1.1400.

On Thursday, amid mounting tensions in the Russia – Ukraine crisis, the shared currency falls 0.04% during the North American session. At the time of writing, the EUR/USD is trading at 1.1367. The financial market mood remains negative. In the Asian session, the EUR/USD witnessed a drop of 58-pips on “reports” that Ukraine forces fired grenades, which officials later denied. Following that headline, the pair stabilized and aimed higher until stalling around the 200-hour simple moving average (SMA) at 1.1363.

Headlines controlled by Russia/Ukraine conflict

In an update of the eastern Europe conflict, Russia stated that Ukraine committed war crimes in Donbas, as stated by a letter to the UN. In the meantime, the US raises the possibility of Russia’s “false-flag” operation as a “pre-text” to invade Ukraine. In the last hour, the White House reiterated its commitment to diplomacy, per remarks of US Secretary of State Blinken at the UN.

ECB and Fed speaking crossing the wires

Earlier in the North American session, ECB’s Chief Economist Philip Lane crossed the wires. He said that “the key message of the February meeting was that risks to inflation are tilted to the upside in the near-term,” according to Reuters. Lane added that “if there is a threat that inflation will settle above two percent in the medium term, while also making sure not to over-react to the extent that there is a risk that high near-term inflation might induce an excessive monetary tightening that pushes inflation persistently below the two percent target over the medium term.”

In the meantime, St. Louis Fed President James Bullard reiterated that he would like 100 bps of rate hikes by July 1 while adding that he is “losing faith” that inflation may abate. Bullard emphasized that an aggressive rate hike would signal that the US central bank is “serious” regarding inflation control. Furthermore, he added that the Fed “may have to go beyond the neutral rate to control prices.”

The US macroeconomic featured Initial Jobless Claims, increasing 248K higher than the 219K for the week ending February 19. At the same time, Building Permits rose to 1.899M better than the 1.76M foreseen, while the Philadelphia Fed Manufacturing Index decreased from 16 to 20, estimated.

EUR/USD Price Forecast: Technical outlook

The EUR/USD is neutral biased and faces strong resistance with the 100-day moving average (DMA) at 1.1400, alongside Pitchfork’s top-trendline around the 1.1400 figure. A clear break would expose February 11 daily high at 1.1430, followed by February 10 cycle high at 1.1494.

On the flip side, the EUR/USD first support would be the 50-DMA at 1.1329. Breach of the latter would expose 1.1300, followed by February 14 daily low at 1.1279. Once cleared, the next EUR/USD floor would be January 28 pivot low at 1.1120.

• WTI rebounded sharply on Thursday after Wednesday’s US/Iran negotiation progress headlines triggered a sharp drop.
• Having been as low as $90.00 on Wednesday, WTI is now trading near $92.00 again thanks to escalating Russia/Ukraine/NATO tensions.
• A long-term trendline continues to offer WTI support.

Oil prices have been choppy on Thursday, caught between the conflicting forces of progress towards a return to the 2015 Iran nuclear deal which could pave the way to a return of Iranian exports to global markets and geopolitical tensions. After Wednesday’s sharp pullback late in US trade on the US/Iran progress headlines that saw front-month WTI futures dip as low as a test of the $90.00 level, prices have seen a sharp recovery on Thursday. Reports of shelling in Eastern Ukraine between pro-Russia separatist forces and the Ukrainian military was the trigger for the rebound and, at current levels near the $92.00 mark, WTI is about $1.50 higher on the session.

For now, WTI is finding support at a long-term uptrend that has been in play all of 2022 thus far. If it wasn’t for Russia/Ukraine/NATO tensions, this support would probably have already been broken to the downside and, if there is de-escalation, may yet be broken. This would likely trigger technical selling and a quick slide under $90.00 and towards recent support in the $88.00s. But that’s a big if, and if Russia does invade Ukraine in some way in the coming days, as NATO leaders see as a very likely possibility, WTI prices would likely be propelled higher towards $100 per barrel.

• USD/MXN  drops below the 200-day SMA.
• Outlook favor the downside, price to face strong support at 20.30 and 20.05.
• Any recovery of the dollar under 20.70, likely to be unstable.

The USD/MXN posted on Wednesday the first daily close in months below the 200-day moving average and slightly under the 20.30 level. The 20.35/30 area was a strong barrier and while the cross remains below, more losses are on the table.

The next support stands at 20.15 and below a more relevant emerges at 20.00/05. A recovery of USD/MXN could take the price quickly to 20.45 but it should be seen as a correction. The critical resistance at the moment is seen around 20.70, the confluence of horizontal support, key MA and a downtrend line. A break higher would change the short-term bias from bearish to neutral/bullish.

Technical indicators look bearish. The RSI is approaching 70 and flattening, a potential sign of exhaustion, not necessarily followed by a sharp correction. A consolidation is also possible particularly if USD/MXN rises back above 20.30.

USD/MXN daily chart

St Louis Fed President and 2022 voting FOMC member James Bullard said on Thursday that recent inflation misses are "not comforting" for policymakers who need to manage the risk that it will continue, according to Reuters. Moreover, Bullard continued, markets may be losing faith that inflation will abate and, thus,  front-loading rate increases would send the right signal that the Fed is serious about controlling inflation. Bullard criticised that there is too much "mind share" devoted to the idea that inflation will ease and the risk now is that it will not. Bullard added that there is not much risk of a recession coming from Fed policy. 

Market Reaction

Typically hawkish remarks from Fed's Bullard have not had that much impact on FX markets, with the DXY continuing to trade flat in the 95.70s area. 

• Despite a risk-off market mood in the week, the NZD/USD is up 0.80%.
• Geopolitical headlines put aside macroeconomic and fundamental data, dominating the headlines.
• US Jobless Claims unexpectedly jumped, while Philadelphia Fed Index decreased.
• NZD/USD Technical Outlook: A daily close under 0.6700 would exacerbate a move towards 0.6500.

The New Zealand dollar slides amid a risk-off market mood, courtesy of the Russia/Ukraine conflict escalation. At the time of writing, the NZD/USD is trading at 0.6698. 

Geopolitical jitters dominate the market mood

Since Friday of last week, developments of the Russia/Ukraine conflict have been blamed for the swings in the financial markets. European and US equity indices remain in the red, while in the FX space, safe-haven peers like the USD, the JPY, and the CHF are sought by investors.

In an update of the eastern Europe conflict, Russia stated that Ukraine committed war crimes in Donbas, as stated by a letter to the UN. Meanwhile, the US raises the possibility of Russia’s “false-flag” operation as a “pre-text” to invade Ukraine. In the last hour, the White House reiterated its commitment to diplomacy, per remarks of US Secretary of State Blinken at the UN.

US Initial Jobless Claims increase while Building Permits increase

Before Wall Street opened, US macroeconomic data crossed the wires. Initial Jobless Claims rose 248K higher than the 219K for the week ending on February 19. At the same time, Building Permits rose to 1.899M better than the 1.76M foreseen, while the Philadelphia Fed Manufacturing Index decreased from 16 to 20, estimated.

During the Asian session, ex-RBNZ member Arthur Grims said that he believes the central bank should hike the benchmark rate by 75 basis points (bps) at next week’s meeting. Furthermore, Grimes noted that “to think of unemployment at 3.2%, with 6 % inflation, and if they increase rates by 25 basis points then the Official Cash Rate will be at 1%, it just doesn’t make sense.”

NZD/USD Price Forecast: Technical outlook

The NZD/USD daily chart depicts the pair as neutral-downward biased, regardless of RBNZ’s commencing its tightening cycle in 2021. The daily moving averages (DMAs) above the spot price adds another signal to the aforementioned.

That said, the NZD/USD first support would be February 10 daily low at 0.6652. Breach of the latter would expose February 14 0.6592 daily low, followed by January 28 cycle low at 0.6528.

US Secretary of State Anthony Blinken said to the UN Security Council on Thursday that this is "a moment of peril" for the lives and safety of millions of people in Ukraine regarding the risk of a possible Russian invasion. 

Additional Remarks: 

• Blinken tells UN "we do not see Russia drawing down its forces."
• Blinken tells the UN security council that Russian forces are preparing to launch an attack against Ukraine "in the coming days". 
• Russia plans to manufacture a pretext for its attack on Ukraine.
• A Russian pretext could include a fake or real attack using chemical weapons.
• Russian media has already begun spreading some of these false alarms.
• Blinken outlines a potential Russian disinformation campaign to UN security council. 
• The Russian government may 'theatrically' convene emergency meetings.
• "I am here today not to start a war but to prevent one.”
• Russia's targets include Ukraine's capital Kyiv. 
• We have information Russia will target specific groups of Ukrainians.
• The information presented here is validated by what we've seen unfolding in plain sight for months.

• Cable heads for highest daily close in a month.
• The pound continues to benefit from BoE expectations.
• Mixed US data: initial jobless claims rise unexpectedly.

The GBP/USD pair rose to 1.3637, after the beginning of the American session reaching the highest level in a week. Later the pair pulled back toward 1.3600 but still was holding onto gains, for the third consecutive day and about to post the highest close in a month.

The pound remains strong and is also up versus the euro as EUR/GBP trades under 0.8350, at the lowest in two weeks after higher-than-expected UK inflation data and also amid concerns regarding the Ukrainian border.

The dollar is mixed on Thursday, with the DXY up 0.04%. Economic data from the US came in mixed. Initial Jobless claims rose unexpectedly to the highest level in three weeks, while housing starts dropped more than forecast. Market participants mostly ignored the numbers. Their attention is set on headlines about Russia, Ukraine and the US.

US President Biden and other American authorities warned about an imminent attack. The situation triggered a decline in equity markets and sent Treasuries higher. The decline in bond yields weakened the greenback.

Levels to watch

A daily close above 1.3600 would be a positive development for the pound. In terms of levels, the next resistance stands at the 1.3645 area (last week high) followed by 1.3662.

On the downside, below 1.3600, the next support stands at 1.3560. A break lower would turn the very short-term bias to bearish/neutral.

Technical levels

• XAG/USD is trading on the front foot in the $23.70s as geopolitical tensions bubble and Russia/Ukraine war risk remains elevated.
• Spot silver traders will be eyeing a test of resistance in the $24.00 area should the situation further escalate.

Spot silver (XAG/USD) prices have been trading on the front foot on Thursday and a challenge of earlier weekly highs at the $24.00 per troy ounce level seems likely if geopolitical tensions continue to rise. There has been limited fighting in Eastern Ukraine on Thursday between pro-Russia separatists and the Ukrainian forces and NATO/US officials continue to sound the alarm about the ongoing Russian troop build-up on Ukraine’s border and the possibility of an attack. Meanwhile, direct relations between NATO and Russia also continue to deteriorate, with Russia recently expelling the US Deputy Ambassador, eroding the seemingly now slim prospect of a diplomatic solution.

All of these fears have been weighing on risk assets (global equities are sharply lower) and boosting demand for safe-havens such as bonds and precious metals. The US 10-year bond yield was last down about 7.5bps on Thursday and back below 2.0% again, which itself helps spur demand for non-yielding assets like silver given the lower opportunity cost. XAG/USD currently trades in the $23.70s, up about 0.7% on the day, underperforming its gold counterpart for now, which for reference is about 1.4% higher on the day. If XAG/USD is able to get above resistance at $24.00, there is scope for some catch-up, as the door would be opened to a run towards the next resistance area around $24.50.

In a letter to the UN Secretary-General on the Ukraine crisis, Russia restated a previous claim that Ukrainian military forces have committed war crimes in Eastern Ukraine. Geopolitical analysts think that Russian claims of Ukrainian war crimes against ethnic Russian's in Ukraine's East, as well as claims of genocide against these people, could form part of the pretext for military intervention in the region. 

The White House reiterated on Thursday that we are in a window where we believe a Russian assault on Ukraine could happen at any time. A false pretext for invasion could take many forms, the White House warned, and the US is bracing for more false reporting from Russian state media in the coming days. The White House said that, in his remarks at the UN, Secretary of State Anthony Blinken will signal an intense commitment to diplomacy. The White House reiterated that it has serious concerns about the movement of Russian troops at Ukraine's borders, and the US has been very clear and transparent about how action the US and its allies will take to deter a Russian invasion. 

US Secretary of State Antony Blinken will be delivering his remarks on the Russia-Ukraine conflict at a UN Security Council Meeting, from UN Headquarters in New York City, on February 17, 2022.

Markets remain risk-averse on Thursday on reports pointing to a heightened risk of a Russian invasion. The benchmark 10-year US Treasury bond yield is down more than 3% on the day and the S&P 500 Index is losing 1.25%.

Meanwhile, the US Dollar Index, which tracks the dollar's performance against a basket of six major currencies, stays relatively quiet below 96.00.

Ukraine's Foreign Minister: Fire from a tank recorded in Eastern Ukraine.

Russia says US security proposals not constructive, ignore key Russia security concerns.

• The USD/JPY extends its fall in the week, down 0.38%.
• US Jobless Claims rose more than expected, while the Philadelphia Fed decreased more than foreseen.
• Increasing tensions of the Russia/Ukraine conflict increased the appeal of the JPY safe-haven status.
• USD/JPY Technical Outlook: The break of 115.00 exposed the 114.14 level.

On Thursday, increasing tensions between Russia and Ukraine dampen the market mood, boosting the safe-haven appeal of the Japanese yen vs. the greenback, as depicted by the 60+ pip fall in the USD/JPY. At the time of writing, the USD/JPY is trading at 114.92.

In the last two hours, a “packed” US economic docket reported Building Permits, Housing Starts, for January. The former came at 1.899M vs. 1.76M, higher than expected, while the latter rose to 1.638M lower than the 1.7M. At the same time, Initial Jobless Claims for the week ending on February 12 showed an increase of 248K higher than the 219K. Further, February’s Philadelphia Fed Manufacturing Index decreased to 16 vs. 20 foreseen.

Russia/Ukraine tensions increase during the overnight session

Putting US economic data aside, the Russia/Ukraine front developments have dominated the financial market mood.

In the last hour, NATO Chief Stoltenberg said that NATO is “concerned” about the increased ceasefire violations in Ukraine. Meanwhile, in the US, President Joe Biden said that the threat of Russia’s invasion of Ukraine is very high. He reiterated that he believed Putin would invade Ukraine in a matter of days. Furthermore, reports from Ukraine, the Defense Ministry said that “shelling from pro-Russian forces ceased as of 10:00 GMT.”

Therefore, tension escalation boosted the appeal of the Japanese yen, as the USD/JPY heads towards the high 114.90s, a level last reached on February 2.

USD/JPY Price Forecast: Technical outlook

The USD/JPY is neutral biased, but the breach of the February 14 daily low at 115.00 opened the door for a February 2 daily low test at 114.14, but first, JPY bulls would need to reclaim the 50-day moving average at 114.73.

However, a shift in the market mood could pave the way for a mean reversion move. The USD/JPY first resistance would be 115.00. A clear break would expose the January 28 daily high at 115.68, followed by 116.00 and the YTD high at 116.35.

European Central Bank Chief Economist Philip Lane said on Thursday that the key message of the February meeting was that risks to inflation are tilted to the upside in the near term, according to Reuters. Lane said that most of the current inflation was an imported inflation shock, given there has not been a boom in domestic demand. Gradualism thus makes sense in this scenario, he added, saying that if inflation is to settle around 2.0% in the medium-term, the policy path is different from open-ended, but won't require a significant tightening cycle. The size and frequency of rate moves will depend on the inflation regime, he added, noting that other increments are possible beyond 25bps moves. 

Market Reaction

The euro has not reacted to the latest Lane comments, with FX markets more focused on the escalating geopolitical atmosphere in Eastern Europe at the moment. 

According to the Kyiv Independent, as of 1500 local time, over 40 artillery incidents have been recorded in the Donbas region of Eastern Ukraine and two Ukrainian soldiers have now been injured.

Market Reaction

The latest run of Russia/Ukraine/NATO headlines, which suggest more violence in Eastern Ukraine and worsening tensions, are weighing on sentiment, with the S&P 500 now trading more than 1.0% lower on the day. 

Ukraine's Foreign Minister Kubela Dmytro said on Thursday that fire from a tank had been recorded in Eastern Ukraine. This follows mortar fire and shelling throughout Thursday morning that was only reported to have stopped at 1300 local time. 

Market Reaction

The latest run of Russia/Ukraine/NATO headlines, which suggest more violence in Eastern Ukraine and worsening tensions, are weighing on sentiment, with the S&P 500 now trading more than 1.0% lower on the day. 

US President Joe Biden said on Thursday that every indication they have is that Russia is prepared to invade Ukraine. “My sense is it will happen within the next several days”.

In a small talk with journalists outside the White House, Biden said he has no plan to talk with Vladimir Putin.

Stocks are falling on Thursday as uncertainty around the Ukraine border grows. The Dow Jones is likely to open with a 0.75% decline and the Nasdaq falling by almost 1%.

Market Reaction

The latest run of Russia/Ukraine/NATO headlines, which suggest more violence in Eastern Ukraine and worsening tensions, are weighing on sentiment, with the S&P 500 now trading more than 1.0% lower on the day. 

In a written response to US security proposals, Russia told the US that their proposals were not constructive and ignored Moscow's key concerns, according to Reuters. Russia's original security proposals were intended as a complete package and not for the US to pick and choose from. US proposals raise doubts that Washington is committed to fixing the security situation in Europe, Russia continued. Russia added that growing US and NATO military activity is alarming and Russia's red lines are still being ignored.

Moreover, US ultimatums for Russia to remove troops from parts of Russia's own territory accompanied by sanction threats are unacceptable and undermine the chances of reaching an agreement. Finally, Russia warned that it would be forced to respond, including by implementing military tactical measures in the absence of negotiating any new, legally binding security guarantees.  

Market Reaction

The latest run of Russia/Ukraine/NATO headlines, which suggest more violence in Eastern Ukraine and worsening tensions, are weighing on sentiment, with the S&P 500 now trading more than 1.0% lower on the day. 

• EUR/USD comes under pressure after two sessions with gains.
• The weekly high near 1.1400 emerges as the next hurdle for bulls.

EUR/USD trades on the defensive following the moderate rebound in the sentiment surrounding the greenback.

A move higher should revisit the weekly high at 1.1395 (February 14) in the near term. The surpass of this level should pave the way for a potential test of the 200-week SMA at 1.1491 soon followed by the 2022 peak at 1.1494 (February 10).

In the longer run, EUR/USD is expected to keep the negative outlook as long as it trades below the key 200-day SMA, today at 1.1645.

EUR/USD daily chart

A spokesperson for the US State Department said on Thursday that Russia's actions against the US Deputy Ambassador (who was expelled on Thursday) was "unprovoked" and marked an "escalatory step". The US is considering a response, the spokesperson added. 

Market Reaction

Markets remain in a defensive mood as they assess the growing likelihood of further military escalation between pro-Russia/Ukrainian forces in Eastern Ukraine and the prospect for further deterioration in Russia/NATO relations. The S&P 500 opened Thursday trade sharply in the red and are back below 4450, down about 0.8% on the day. 

St Louis Fed President and 2022 voting FOMC member James Bullard on Thursday reiterated his calls for 100bps of hikes to the Federal Funds target range by July 1, again citing high inflation. We want to pursue the best policy we can and let the market adjust appropriately, he said in an interview on CNN, adding that this is the moment where we need to share less accommodation. 

Markets have already done a lot of pricing, Bullard noted, adding that he didn't think raising rates would be risking a recession. Rather, this is about the Fed's first moves away from accommodative policy, he continued, noting that the labour markets will continue getting tighter and inflation is eating into wages.   

GBP/USD maintains a slight upward bias in its broader range. Analysts at Credit Suisse look for a retest of key resistance seen starting at the recent spike high at 1.3644, ahead of 1.3662/63 and then the key 200-day average (DMA), now at 1.3692.

Support at 1.3466/56 set to hold

“Resistance moves to 1.3610 initially, above which should clear the way for strength back tougher resistance seen starting at the recent spike high at 1.3644 ahead of 1.3662/63 and then the key 200-DMA, now at 1.3692.”

“A close above 1.3700 remains needed to suggest we are seeing a more sustained turn higher, with resistance then seen next at 1.3830/38.”

“Near-term support moves to 1.3556, then 1.3529, below which can see a retreat back to the 1.3487 recent low. With the 55-DMA and potential uptrend from late not far below at 1.3466/56 we continue to look for a fresh floor here. Should weakness directly extend this can see a retest of the late January low and ‘neckline’ to the December base at 1.3376/59.”

The EUR/USD pair is unchanged on the session trading the 1.1370 area. Economists at Scotiabank highlight the key technical level to watch.

Initial support located around 1.1350

“Support after the mid-1.13s and ~1.1320/25 is the big figure followed by 1.1280.”

“Resistance after 1.1385/00 is limited until the mid-1.14s.”

According to Interfax citing Russia's response to US security guarantees, Russia has no plans to invade Ukraine. However, Russia has not seen full intention from the US to stick to the indivisibility principle of security, Interfax reported. 

Separately, RIA reported that Russia said that de-escalation would require that Ukraine comply with the Minsk agreements and that no more weapons should be delivered to Ukraine. RIA added that Russia is insisting on the withdrawal of all US forces from Central and Eastern Europe and expects further specific proposals from the US and NATO regarding no further Easterward enlargement. Moreover, RIA reported that Russia said that arms control issues can't be considered separately from other topics. 

Market Reaction

Risk appetite remains uneasy, with S&P 500 futures down about 05% in pre-market trade as headlines suggest ongoing tensions between Russia/Ukraine/NATO. 

GBP/USD has broken above 1.36. Economists at Scotiabank expect cable to enjoy further gains towards the 1.3750 region on a path over 1.3650.

1.36 turns into support 

“Cable is on a decent upward trajectory since its short-lived break under 1.35 on Tuesday, and today’s climb above 1.36 points to a test of the GBP’s two-week channel’s ceiling of ~1.3650 – after some intermediate resistance at ~1.3625. 

“A break past the mid-1.36s zone would point to an extension of its week-long rally in late-Jan/early-Feb toward a test of the mid-Jan high in the mid-1.37s. The 1.3665/70 area also stands as trendline resistance from its losses since mid-2021.”

“Support is the figure zone followed by ~1.3570 and the mid-1.35s”

• DXY regains the smile amidst renewed risk aversion.
• The weekly high around 96.40 emerges as the next up barrier.

DXY reverses two consecutive daily pullbacks and looks to reclaim the area above the 96.00 barrier on Thursday.

If the recovery gathers steam, then the index is expected to challenge the weekly tops at 96.43 (February 14), which is considered the last defence before an assault to the YTD high near 97.50 (January 28).

In the meantime, further gains in DXY looks likely as long as the 5-month line near 95.30 holds the downside.

In the longer run, the outlook for the dollar is seen as positive above the 200-day SMA at 93.70.

DXY daily chart

European Central Bank Chief Economist Philip Lane said on Thursday that if medium-term inflation is expected to stabilise around the bank's 2.0% target, this would permit a gradual normalisation of monetary policy settings. If inflation threatens to persist significantly above the 2.0% target over the medium-term, tightening of monetary policy will be required, Lane added. On the other hand, if inflation is expected to fall significantly below the 2.0% target over the medium term, setting a more accommodative monetary policy will be necessary. Finally, Lane said that there are several factors that suggest that the excessively low inflation environment that prevailed from 2014 to 2019 might not re-emerge even after the pandemic cycle is over. 

Market Reaction

Lane's comments do not add anything new to the near-term ECB policy debate and have thus not provoked any notable market reaction. 

The S&P 500 strength stays seen as a corrective bounce only. Analysts at Credit Suisse continue to look for resistance from the 13-day exponential average at 4483 to ideally cap on a closing basis for a fall back to 4365 and eventually 4223/4199.

Strength is corrective only

“We continue to view the rebound of the past few days as corrective and we look for the risk to turn lower again from 13-day exponential average, now seen at 4483.”

“Support stays seen initially at the 200-day average at 4456, with a break below the price gap from earlier this week at 4429/02 needed to clear the way for a retest of 4365. Below here in due course can see support seen next at 4292 and eventually the major support cluster at 4223/4199.”

“A close above 4483 can see strength extend further to 4526 next, potentially 4555. We shall though maintain a negative tactical bias whilst below key resistance at 4491/4608.”

Russia has expelled Deputy US Ambassador Bart Gorman, Sputnik reported on Thursday.

Kit Juckes, Chief Global FX Strategist at Société Générale, was asked for a 20 to 30-year view of the GBP/USD exchange rate. He believes that cable could trade as high as 1.50.

Central Bank independence changes everything 

“With the Bank of England and Federal Reserve both operating as independent, inflation-targeting central banks, that much-maligned measure of currency ‘fair value, Purchasing Power Parity (PPP) provides the most credible framework for thinking about the GBP/USD outlook.”

“Brexit will continue to throw spanners into the wheels of the UK economy. But the MPC will go on targeting inflation and that probably matters more for sterling.”

“GBP/USD PPP is a whisker below 1.50. That’s as good a guess of where GBP/USD will be in 20-30 years’ time as any, and a lot more reasonable than some.”

• A combination of factors dragged USD/CHF lower for the second successive day on Thursday.
• Retreating US bond yields, less hawkish FOMC minutes acted as a heading for the greenback.
• Russia-Ukraine jitters benefitted the safe-haven CHF and also contributed to the selling bias.

The USD/CHF pair dropped to a nearly two-week low during the early North American session, with bears looking to extend the downward trajectory further below the 0.92000 round-figure mark.

The pair added to the overnight losses and remained under bearish pressure for the second successive day on Thursday amid the emergence of fresh selling around the US dollar. Against the backdrop of less hawkish FOMC minutes released on Wednesday, retreating US Treasury bond yields turned out to be a key factor that failed to assist the buck to preserve its modest intraday gains.

Fed officials agreed that it would be appropriate to remove policy accommodation at a faster pace than anticipated if inflation does not move down as they expect. The minutes, however, failed to reinforce expectations for a 50 bps rate hike in March. Apart from this, the global flight to safety – amid intensifying Russia-Ukraine conflict – dragged the US bond yields lower.

In the latest geopolitical developments, Russian media reported that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities. Adding to this, the Organization for Security and Co-operation (OSCE) in Europe recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday.

Meanwhile, the Russian Ministry of Defense released a video this Thursday, showing a logistics unit coming back to its home base after the completion of drills. The US Defense Secretary Lloyd Austin, however, dismissed Russia's claims that it is withdrawing troops and said that the US is seeing some Russian forces inching closer to the Ukrainian border.

The contradicting headlines kept investors' on the edge, which was evident from a generally weaker tone around the equity markets. This, in turn, benefitted the Swiss franc's relative safe-haven status and dragged the USD/CHF pair to the 0.9200 mark. A convincing break below will be seen as a fresh trigger for bearish traders and set the stage for further losses.

On the economic data front, the US Weekly Initial Jobless Claims unexpectedly rose to 248K during the week ended February 11 and the previous reading was also revised slightly higher to 225K. Separately, the Philly Fed Manufacturing Index fell more than anticipated to 16 in February, from 23.2 in the previous month, and did little to lend any support to the USD.

Technical levels to watch

• Building Permits were stronger than expected, while Housing Starts were weaker. 
• FX markets did not react and are instead focused on geopolitics and upcoming central bank speak.  

Building Permits rose by 0.7% MoM in December to 1.899M over the last 12-months, whilst Housing Starts fell 4.1% MoM to 1.628M over the last 12-months, according to the latest data published jointly by the US Census Bureau and the US Department of Housing and Urban Development on Thursday. Median economist forecasts had been expecting the December data to show that there had been 1.760M Building Permits in the past 12-months and 1.7.0M Housing Starts, so the latest numbers were mixed, with Building Permits stronger than expected and Housing Starts weaker. 

Market Reaction

FX markets seem far more focused on geopolitics right now and, thus, there has not been a notable reaction to the latest data.  

According to a report from the Federal Reserve Bank of Philadelphia released on Thursday, the headline Manufacturing Activity Index of the Manufacturing Business Outlook Survey fell to 16.0 in February from 23.2 in January, bigger than the expected decline to 20.0. 

Subindices:

• Employment Index rose to 32.3 from 26.1 in January. 
• Prices Paid Index fell to 69.3 from 72.5.
• New Orders Index fell to 14.2 from 17.9. 
• 6-month Expectations Index fell to 28.1 from 28.7.
• Capital Expenditures Index fell to 21.5 from 26.2.

Market Reaction

FX markets seem far more focused on geopolitics right now and, thus, there has not been a notable reaction to the latest data.

• Initial claims were higher than expected in the week ending February 12 at 248K. 
• But Continued Claims in the week ending February 5 were lower than expected.  

There were 248,000 initial claims for unemployment benefits in the US during the week ending February 12, the data published by the US Department of Labor (DOL) revealed on Thursday. This was above the median economist forecast for 219,000 initial claims and was also above last week's 225,000 reading, which had been revised higher from 223,000. That meant the four-week average fell to 243,250 from 253,750 the week prior. 

Continued claims fell to 1.593M in the week ending on February 5, below the expected 1.605M and down from last week's 1.619M reading, which had been revised a touch lower from 1.621M. The insured unemployment rate was unchanged at 1.2% on the week ending on February 5. 

Market Reaction

FX markets seem far more focused on geopolitics right now and, thus, there has not been a notable reaction to the latest data.  

Gold continues to push higher above $1,880 on Thursday. When geopolitical tensions eventually subside, higher US Treasury yields, a resilient USD, and lower safe-haven demand may hit gold but a floor is close at hand, amid inflation and other risks, strategists at HSCB report.

XAU/USD to find a floor this year

“Gold may come under pressure in 2022 amid a shift in monetary and fiscal policies but a floor is close at hand.”

“Real rates will remain negative and a possible rise in trade and geopolitical risks could help gold. Financial market volatility and COVID-19 uncertainties could also trigger safe-haven demand for gold.”

“A longer-term source of gold demand could come from central banks, which are expected to accumulate more gold reserves, amid portfolio diversification and risk management.”

See – Gold Price Forecast: XAU/USD to reach $1,950 by end-2022 in Fed becomes dovish – UBS

• EUR/USD has been choppy on geopolitical headlines but is back to trading flat on the day in the 1.1370 area.
• Ahead, focus remains heavily on geopolitics, though upcoming US data and ECB/Fed speak will also be of note.

EUR/USD has seen choppy, two-way price action on Thursday, with the pair buffeted by geopolitical headlines. News during the Asia Pacific session of shelling in Eastern Ukraine, with pro-Russia separatists claiming that the Ukrainian military had attacked unprovoked, saw EUR/USD shed nearly 60 pips in a matter of minutes, dropping from the 1.1380 area to lows just above 1.1320. However, subsequent denial by Ukraine, who blamed pro-Russia separatist forces for the shelling, aided EUR/USD to recover back to the upper 1.1300s.

At current levels in the 1.1370s, the pair is back to trading flat on the day, though troubling reports of shelling in Eastern Ukraine and continued Russian military build-up on the border will likely keep the pair on the defensive. Indeed, US and NATO leaders, government officials and intelligence community leaders continue to sound the alarm that Russia remains ready to launch an invasion at little to no warning. For now, EUR/USD bulls may have a tough time pushing the pair above weekly highs just under the 1.1400 level. Aside from geopolitics, EUR/USD are also focused on ECB/Fed rhetoric, with policymakers having spoken recently and scheduled to orate on Thursday and Friday.

Wednesday’s Fed minutes, which were seen as somewhat stale by many investors given recent inflation surprises since the last policy meeting, did not contain any hawkish bombshells, market commentators noted, which undermined the US dollar slightly at the time. Attention now turns to commentary from ECB Chief Economist Philip Lane at 1400GMT following what investors interpreted as dovish remarks from ECB’s Pablo de Cos earlier in the session, as well as and Fed’s James Bullard and Loretta Mester at 1600GMT and 2200GMT respectively. Before more central bank rhetoric, investors will be keeping an eye on the release of US weekly jobless claims and Philadelphia Fed manufacturing survey data at 1330GMT.

The US Envoy to the UN said on Thursday that evidence on the ground suggests that Russia is moving towards an "imminent invasion" of Ukraine and that this is a "crucial moment", according to Reuters. Reuters also reported that US Secretary of State Anthony Blinken on Thursday changed his travel plans at the last minute to speak at the UN Security Council meeting on Ukraine on Thursday. 

The US Defense Secretary Lloyd Austin on Thursday said that the US is seeing some Russian forces inching closer to the Ukrainian border and stocking up on blood. Austin added that Russia is flying more combat aircraft and dismissed Moscow's claims that it is withdrawing troops. "I was a soldier myself not that long ago" Reuters quoted Austin as saying. "I know firsthand that you don't do these sorts of things for no reason," he continued, "and you certainly don’t do them if you're getting ready to pack up and go home." Austin called the reports of shelling in Ukraine "troubling". 

Market Reaction

Amid concerning geopolitical headlines pointing towards the risk of Russia/Ukraine military escalation, markets remain in a defensive mood prior to the start of the US session. S&P 500 futures are currently trading with slight losses in pre-market trade of about 0.2%,  though remain within Wednesday's ranges and above the 4450 level. 

• A combination of factors failed to assist USD/CAD to capitalize on its modest intraday gains.
• An uptick in oil prices underpinned the loonie and capped the upside amid renewed USD selling.
• A recovery in the risk sentiment, retreating US bond yields weighed on the safe-haven buck.

The USD/CAD pair trimmed a part of its intraday gains and was last seen trading around the 1.2700 mark, up nearly 0.20% heading into the North American session.

The pair attracted some buying on Thursday and built on the overnight bounce from the 1.2665 area, or the weekly low, though a combination of factors capped any meaningful upside. Intensifying the Russia-Ukraine conflict pushed crude oil prices higher and underpinned the commodity-linked loonie. This, along with the emergence of fresh US dollar selling, acted as a headwind for the USD/CAD pair.

Russia's claims of a partial pullback of troops from the Ukraine border earlier this week was countered by Western governments, saying that there were no signs of de-escalation on the ground. Apart from this, reports of shelling in eastern Ukraine boosted oil prices, though expectations for the return of Iranian oil in the markets kept a lid on any meaningful upside, at least for the time being.

On the other hand, the USD struggled to preserve its modest intraday gains and met with a fresh supply amid retreating US Treasury bond yields. Moreover, the risk sentiment recovered a bit after the latest satellite image showed that Russia has pulled back some equipment from the Ukraine border. This, along with less hawkish FOMC minutes released on Wednesday, weighed on the safe-haven greenback.

Market participants now look forward to the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields, will influence the USD and provide some impetus to the USD/CAD pair. Apart from this, traders will further take cues from oil price dynamics to grab some meaningful opportunities around the major.

Ukrainian President Volodymyr Zelenskyy said on Thursday that the shelling of a kindergarten in Eastern Ukraine by pro-Russian separatist forces was a big provocation. Zelenskyy urged foreign diplomats and the OSCE to remain in Ukraine, as their monitoring activities act as a deterrent to further aggression. 

Market Reaction

Amid concerning geopolitical headlines pointing towards the risk of Russia/Ukraine military escalation, markets remain in a defensive mood prior to the start of the US session. S&P 500 futures are currently trading with losses of about 0.3% on the day,  though remain within Wednesday's ranges and above the 4450 level. 

NATO Secretary-General Jens Stoltenberg said on Thursday that the defensive alliance is concerned that Russia is trying to stage a pretext for an invasion of Ukraine, according to Reuters. Stoltenberg continued that NATO has intelligence that Russia is trying to stage a false-flag operation and reiterated that NATO nations remain concerned that they have not yet seen any signs of withdrawal of Russian troops. 

Market Reaction

Amid concerning geopolitical headlines pointing towards the risk of Russia/Ukraine military escalation, markets remain in a defensive mood prior to the start of the US session. S&P 500 futures are currently trading with losses of about 0.3% on the day,  though remain within Wednesday's ranges and above the 4450 level. 

• AUD/USD reversed an intraday dip to mid-0.7100s amid the emergence of fresh USD selling.
• Retreating US bond yields, less hawkish FOMC minutes continued weighing on the greenback.
• Geopolitical tensions, the risk-off impulse might cap the upside for the perceived riskier aussie.

The AUD/USD pair traded with a mild positive bias through the mid-European session and was last seen hovering around the 0.7200 mark, just a few pips below the one-week high.

The pair attracted some dip-buying on Thursday and quickly reversed a knee-jerk slide to an intraday low, around mid-0.7100s touched in reaction to reports of shelling in eastern Ukraine. The emergence of fresh selling around the US dollar turned out to be one of the key factors that assisted the AUD/USD pair to regain some traction. The upside, however, remains capped amid the prevalent risk-off mood, which acted as a headwind for the perceived riskier aussie.

Intensifying the Russia-Ukraine conflict kept investors on the edge, which was evident from a generally weaker tone around the equity markets. In fact, Russian media reported that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities. Moreover, the Organization for Security and Co-operation (OSCE) in Europe recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday.

Ukraine, however, denied the accusations, while the Russian Ministry of Defense released a video showing a logistics unit coming back to its home base after the completion of drills. Adding to this, the latest update from US satellite image company, Maxar Technologies, showed that Russia has pulled back some equipment from the Ukraine border. Hence, the market focus will remain on geopolitical developments, which will continue to play a key role in influencing the risk sentiment.

In the meantime, rising bets for an eventual interest rate hike by the Reserve Bank of Australia in 2022 might continue to lend support to the Australian dollar. On the other hand, retreating US Treasury bond yields, along with less hawkish FOMC minutes released on Wednesday could keep the USD bulls on the defensive. This, in turn, supports prospects for a further near-term appreciating move for the AUD/USD pair, though geopolitical tensions warrant caution.

Market participants now look forward to the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, the broader market risk sentiment would be looked upon for some meaningful trading opportunities around the major.

Technical levels to watch

Russian and Belarusian troops are to hold live-fire exercises on Thursday and Saturday, Russian defense sources told Interfax on Thursday. According to Interfax, the Russian Defense Ministry said that Russian troops will leave Belarus after military drills are completed and that troops continue to return to bases. 

Market Reaction

Amid concerning geopolitical headlines pointing towards the risk of Russia/Ukraine military escalation, markets remain in a defensive mood prior to the start of the US session. S&P 500 futures are currently trading with losses of about 0.3% on the day,  though remain within Wednesday's ranges and above the 4450 level. 

• USD/TRY extends its consolidation theme in the mid-13.00s.
• The CBRT kept the One-Week Repo Rate unchanged at 14.00%.
• The CBRT stands ready to support the “liraization” strategy.

The Turkish lira depreciates marginally and lifts USD/TRY back above the 13.60 level, although always within the broad-based range bound theme prevailing since mid-January.

USD/TRY unfazed by CBRT decision

USD/TRY extends the choppy activity so far this week and it is no exception on Thursday, after the Turkish lira stayed mostly apathetic on the decision by the Turkish central bank (CBRT) to leave the One Week Repo Rate constant at 14.00%.

The central bank deemed as appropriate leaving the policy rate unchanged against the backdrop of the strong economic recovery in Turkey, which was also helped by solid external demand.

The CBRT reiterated that elevated domestic inflation comes in response to “pricing formations that are not supported by economic fundamentals”, higher commodity and energy prices as well as supply disruptions and demand issues.

In addition, the central bank stressed its readiness to keep supporting the “liraization” strategy (whatever that means) in order to achieve the medium-term 5% inflation goal amidst a permanent drop in inflation.

What to look for around TRY

The pair keeps its multi-week consolidative theme well in place around 13.50/60. While skepticism keeps running high over the effectiveness of the ongoing scheme to promote the de-dollarization of the economy, the reluctance of the CBRT to change the (collision?) course and the omnipresent political pressure to favour lower interest rates in the current context of rampant inflation and (very) negative real interest rates are expected to maintain the lira under scrutiny for the time being.

Key events in Turkey this week: CBRT interest rate decision (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is advancing 0.26% at 13.6280 and a drop below 13.4317 (weekly low Feb.11) would expose 13.2327 (monthly low Feb.1) and finally 12.7523 (2022 low Jan.3). On the other hand, the next up barrier lines up at 13.6767 (weekly high Feb.15) seconded by 13.9319 (2022 high Jan.10) and then 18.2582 (all-time high Dec.20).

• EUR/JPY fades the recent strength and drops below 131.00.
• The 200-day SMA near 130.50 supports the downside so far.

EUR/JPY fades Wednesday’s uptick to the vicinity of 132.00 and slips back to the sub-131.00 region on Thursday.

Despite the knee-jerk, further upside in the cross should remain on the table while above the 2-month support line, today near 128.80. That said, the resumption of the upside bias should retarget the weekly high at 131.90 (February 16) ahead of the 2022 peak at 133.15 (February 10). If the buying impulse gathers extra pace, then the focus of attention should gyrate to the October 2021 high at 133.48 (October 20).

On the longer term, the outlook for the cross is seen as constructive as long as it trades above the 200-day SMA at 130.44.

EUR/JPY daily chart

The Central Bank of the Republic of Turkey (CBRT) announced on Thursday that it left its policy (one-week repo) rate unchanged at 14% as expected.

Market reaction

The USD/TRY pair edged slightly lower following this announcement and was last seen posting small daily gains at 13.6200.

Key takeaways from policy statement

"Will continue to use all available instruments decisively within the framework of liraization strategy."

"Strengthening of the improving trend in the current account balance is important for price stability."

"Extending long-term Turkish lira investment credit will play a significant role in achieving this target."

"Comprehensive review of the policy framework is being conducted with the aim of encouraging permanent liraization in all policy tools of the CBRT."

"Cumulative impact of the recent policy decisions is being monitored, to create a foundation for sustainable price stability."

"Expecting disinflation process to start on the back of measures taken."

Japanese Prime Minister Fumio Kishida said on Thursday that they are arranging charter flights in countries near Ukraine in case they need to evacuate Japanese nationals, as reported by Reuters.

Additional takeaways

"Not realistic to ease border controls in one go."

"If changes to the status quo with force were allowed in Ukraine, it would send the wrong message to Asia, international community."

"Making arrangements for talks with Russian President Putin."

"Will analyse rising oil prices to see what steps would be necessary further to ease the pain on people's livelihoods."

Market reaction

The USD/JPY pair stays under modest bearish pressure following these comments and was last seen losing 0.35% on the day at 115.05.

• GBP/USD gained traction for the third successive day and climbed to a fresh weekly high.
• Rising bets for additional BoE rate hikes in 2022 acted as a tailwind for the British pound.
• Retreating US bond yields undermined the USD and remained supportive of the move up.

The GBP/USD pair climbed to a fresh weekly high during the first half of the European session and is now looking to build on the momentum further beyond the 1.3600 mark.

A combination of supporting factors assisted the GBP/USD pair to reverse an intraday dip to the 1.3555 area and move into positive territory for the third successive day on Thursday. As investors digest contradicting geopolitical headlines, the emergence of fresh US dollar selling acted as a tailwind for the pair. Apart from this, rising bets for additional interest rate hikes by the Bank of England underpinned the British pound and provided an additional lift to the major.

Russian media reported earlier today that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities, though Ukraine denied the accusations. Moreover, the Russian Ministry of Defense said that around 10 military convoys have left Crimea and released a video showing a logistics unit coming back to its home base after the completion of drills. This, in turn, capped the upside for the safe-haven USD and extended support to the GBP/USD pair.

Apart from this, less hawkish FOMC minutes released on Wednesday, along with retreating US Treasury bond yields further undermined the greenback. Policymakers agreed that it would be appropriate to remove policy accommodation at a faster pace than anticipated if inflation does not move down as they expect. The minutes, however, failed to reinforce expectations for a 50 bps rate hike in March, which have helped the greenback to gain some meaningful traction in the recent sessions.

It, however, remains to be seen if the GBP/USD pair is able to capitalize on the move or meets with a fresh supply at higher levels amid tensions over the Northern Ireland Protocol. In the absence of any major market-moving economic releases from the UK, the pair remains at the mercy of the USD price dynamics and geopolitical developments. Later during the early North American session, traders will take cues from the US economic docket, featuring the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data.

Technical levels to watch

A Kremlin spokesperson said on Thursday that Russia is seriously concerned by the flare-up in violence in eastern Ukraine, as reported by Reuters.

Additional takeaways

"Moscow has repeatedly issued warnings over the concentration of Ukrainian forces near the contact line."

"Hopeful western capitals and NATO will use influence to warn Kyiv against inflaming situation there."

"It took weeks to deploy forces for military exercises and it takes time to withdraw them."

"Time is needed for troops to return to usual bases, it cannot be done in days."

"Russian defence ministry has a clear timetable to withdraw forces after war games."

"Defence minister told Russian President Putin certain phases of drills near Ukraine and in Crimea were nearing their end and forces involved in them will return to base when exercises end."

"We hope people will not believe fake reports about new possible Russian invasion date."

Market reaction

These comments don't seem to be having a significant impact on risk sentiment. As of writing, US stock index futures were down between 0.4% and 0.55, the US Dollar Index was flat on the day at 95.80.

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest release of inflation figures in the Chinese economy.

Key Takeaways

“China’s CPI and PPI continued to moderate and were both below expectations in Jan.”

“We maintain our forecast for 2022 CPI to average 2.2% compared to 0.9% in 2021 as it is expected to rebound in the coming months on the back of the low comparison base last year as well as elevated energy prices. Consumption demand recovery may still be constrained by a weaker economic outlook and COVID-19 containment measures, at least in the first half of the year.”

“We expect PPI to moderate towards 4-6% in 2022 from 8.1% in 2021 but elevated energy prices and the supply chain disruption remain key concerns.”

“The PBOC maintained its rhetoric on a prudent monetary policy that should be flexible and appropriate and to strengthen cross-cyclical adjustment. We expect the PBOC to guide the LPR lower in the coming MLF settings and maintain our call for the benchmark 1Y LPR to fall by another 15 bps to 3.55% by the end of 2Q22.”

EUR/CZK has staged a rebound after forming a trough near 24.09 earlier this month. But if the pair fails to pierce the 24.75 level, another leg lower towards the 2011 low of 23.93 could be witnessed, economists at Société Générale report.

Near-term resistance aligns at 24.75

“Daily Ichimoku cloud at 24.75 is near-term resistance.”

“Failure to cross 24.75 can take the EUR/CZK pair lower towards 2011 low of 23.93.”

Dip below the 200- day moving average (DMA) at 5.38) has extended the USD/BRL down move. Economists at Société Générale expect the pair to suffer additional losses on a fall below 5.11/5.09.

200-DMA at 5.38 caps near-term upside

“The pair is now drifting towards potential support of last September trough at 5.11/5.09 which is also the 76.4% retracement from June 2021. If the correction persists below this, USD/BRL could attempt a revisit of the lower band of the range at 4.95 and 4.89.”

“The 200-DMA at 5.38 caps near-term upside.”

GBP/USD has encountered near-term resistance at 1.3600 early Thursday. Souring market mood could drag cable below 1.3560, FXStreet’s Eren Sengezer reports.

Break above 1.3600 to target 1.3645

“A further escalation of geopolitical tensions could weigh on GBP/USD while a positive shift in risk sentiment could open the door for additional gains.”

“If GBP/USD manages to climb above 1.3600 (psychological level, static level) and starts using that level as support, 1.3620 (static level) and 1.3645 (February 10 high) could be targeted.”

“In case a four-hour candle closes below key support at 1.3560 (200-period SMA, Fibonacci 23.6% retracement of the latest uptrend), an extended decline toward 1.3520 (Fibonacci 38.2% retracement, 100-period SMA) and 1.3500 (psychological level) could be witnessed.”

Russian Foreign Minister Sergei Lavrov said on Thursday that Russia's joint military drills with Belarus will end on February 20 as initially announced, per Reuters. "Talks will continue on all aspects of our security proposals," Lavrov added.

Similarly, the RIA news agency reported that Russia was not planning to leave troops in Belarus for an extended period.

Market reaction

Investors remain cautious following these comments. The US Dollar Index was last seen posting small daily gains at 95.90 and US stocks futures indexes were down between 0.5% and 0.65%.

• The global flight to safety benefitted the JPY and dragged USD/JPY to a nearly two-week low.
• Russia-Ukraine crisis weighed on the risk sentiment and boosted demand for safe-haven assets.
• Retreating US bond yields, less hawkish FOMC minutes capped any meaningful gains for the USD.
• Sustained break below the 115.00 mark would set the stage for additional near-term weakness.

The USD/JPY pair dropped to a nearly two-week low during the first half of the European session, with bears now awaiting sustained weakness below the 115.00 psychological mark.

The global risk sentiment took a hit on Thursday after Russian media reported of mortar fire in eastern Ukraine. In fact, Russia-backed rebels accused Ukrainian forces of shelling their territory, which triggered a fresh leg down in the equity markets. This, in turn, benefitted the Japanese yen's safe-haven status and dragged the USD/JPY pair lower for the second successive day.

The flight to safety triggered a sharp pullback in the US Treasury bond yields. This, along with less hawkish FOMC minutes, showing that policymakers were not set on a particular pace of interest rate hikes, capped any meaningful upside for the US dollar. This was seen as another factor that inspired bearish traders and contributed to the selling bias around the USD/JPY pair.

The fundamental backdrop supports prospects for a further near-term depreciating move, though bullish resilience near the 115.00 mark warrants some caution. Hence, it will be prudent to wait for some follow-through selling before positioning for an extension of the recent pullback from the vicinity of the multi-year high, around the 116.35 region touched on February 10.

Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, geopolitical developments would be looked upon for some short-term opportunities around the USD/JPY pair.

Technical levels to watch

European Central Bank policymaker Pablo Hernandez de Cos noted on Thursday that inflation in the euro area has surprised consistently on the upside over the last few quarters and in recent months, per Reuters.

Additional takeaways

"We should now use PEPP reinvestment flexibility proactively, monitor whether it is sufficient to ensure our monetary policy is appropriately transmitted across the euro area."

"A premature tightening of monetary policy would only add to the negative consequences."

"In a highly uncertain scenario, including geopolitical tensions in Ukraine, ECB should not constitute an additional source of uncertainty."

"ECB should rather maintain a clear, gradual and predictable path for its policy."

"Monetary policy direction in which we need to head is clear but we should not draw premature conclusions as to the time frame."

"Process will be both gradual and data-dependent."

Market reaction

The shared currency stays on the back foot after these comments and the EUR/USD pair was last seen losing 0.12% on a daily basis at 1.1358.

USD/TRY points to sideways price action in short-term. If the pair fails to break above the 14.00/35 resistance zone, then we could see another leg lower towards 12.80, economists at Société Générale report.

USD/TRY could remain within a range near-term

“Crisscross price action around the 200-DMA points towards lack of clear direction. The pair has started consolidating last year's gains and could remain within a range near-term.”

“14.00/14.35, the 50% retracement of the pullback is likely to be immediate resistance.”

“Failure to cross 14.00/14.35 can result in a dip towards low of January at 12.80.”

USD/CNH could now likely embark on a mover lower to the 6.3230 level in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could weaken further even though Jan’s low near 6.3230 is unlikely to come under threat’. We added, ‘there is another support at 6.3300’. USD subsequently dropped to 6.3308. Downward momentum has not improved by much but there is room for USD to drop to 6.3270. The Jan’s low near 6.3230 still appears to be unlikely to come under threat. Resistance is at 6.3365 followed by 6.3430.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (16 Feb, spot at 6.3390). As highlighted, the recent consolidation phase is over and USD is likely to head lower towards 6.3230. Only a break of the ‘strong resistance’ level, currently at 6.3585 would indicate that that our view for a lower USD is wrong. On a shorter-term note, 6.3490 is already quite a strong resistance level.”

• EUR/USD drops to 2-day lows near 1.1320.
• Risk aversion weighs on the pair and supports the dollar.
• ECB-speak, US weekly Claims, Philly Fed Index next on tap.

The resumption of the risk-off mood among investors lends fresh oxygen to the dollar and forced EUR/USD to retreat to the 1.1320 region, or 2-day lows, on Thursday.

EUR/USD weaker on geopolitical concerns

EUR/USD grinds lower and reverses two consecutive sessions with gains in the second half of the week on renewed geopolitical jitters stemming from the Russia-Ukraine conflict. Indeed, fresh risk aversion irrupted in the markets, motivating the demand for the greenback to revive and put the pair under moderate downside pressure.

The knee-jerk in spot comes in tandem with further correction in yields of the key German 10y bund, which retreat to the 0.25% region, or multi-day lows, so far on Thursday.

Later in the session, ECB’s Board members I.Schnabel and P.Lane are due to speak. In the NA session, the focus of attention will be on the regional manufacturing gauge released by the Philly Fed seconded by usual Initial Claims and results from the housing sector.

What to look for around EUR

EUR/USD now seems to have met decent resistance around the 1.1400 zone amidst some loss of momentum in the relief rally in combination with the resumption of the geopolitical-led risk aversion. Looking at the broader scenario, the improvement in the pair’s outlook appears underpinned by fresh speculation of a potential interest rate hike by the ECB at some point by year end, higher German yields, persevering elevated inflation and a decent pace of the economic activity and other key fundamentals in the region

Key events in the euro area this week: Flash EMU Consumer Confidence (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 retreating 0.12% at 1.1358 and faces the next up barrier at 1.1395 (weekly high Feb.16) followed by 1.1491 (200-week SMA) and finally 1.1494 (2022 high Feb.10). On the other hand, a drop below 1.1323 (low Feb.17) would target 1.1279 (weekly low Feb.14) en route to 1.1186 (monthly low Nov.24 2021).

• WTI price shoots higher amid escalating Russia-Ukraine tensions.
• Bulls remain hopeful while above the 21-DMA critical support.
• Further upside will gains traction only above the $93 threshold.

WTI (NYMEX futures) is staging a solid rebound from near the $88.00 region, snapping a two-day downtrend, in the wake of the escalation in the Russian-Ukraine conflict.

According to the Russian news agencies, Ukraine’s armed forces were seen firing grenades and mortars in a conflicted area in East Ukraine during late Asia. Although, Ukraine denied any such shelling but incoming contradictory reports from both sides keep the situation tense.

The reports triggered a sudden risk-off wave across the markets while putting a solid bid under the black gold, driving WTI higher from daily lows of $88.21 to as high as $91.36.

At the time of writing, US oil is trading 1.70% on the day around $90.35, finding support from the geopolitical risks.

From a near-term technical perspective, WTI bulls remain hopeful so long as they hold above the upward-sloping 21-Daily Moving Average (SMA) at $88.18.

The 14-day Relative Strength Index (RSI) inches higher while above the central line, allowing room for more upside.        

On buying resurgence, WTI could retest the daily highs, above which doors will open up towards Wednesday’s high of $93.06.

On the flip side, if the 21-DMA is breached on a daily closing basis, then a fresh downswing will get initiated towards the previous week’s low of $87.46.

The last line of defense for bulls is seen at $86.50, the psychological support.

WTI: Daily chart

• Gold gained strong traction for the second straight day and shot to a fresh multi-month high.
• Russia-Ukraine crisis weighed on the risk sentiment and benefitted the safe-haven XAU/USD.
• Technical buying above the $1,877-$1,879 region further contributed to the strong move up.

Gold built on the previous day's positive move and gained strong follow-through traction for the second successive day on Thursday. The momentum extended through the early European session and pushed spot prices to the $1,890 area, or the highest level since June 2021 in the last hour. A flood of contradicting headlines amid intensifying Russia-Ukraine conflict continued weighing on investors' sentiment, which was evident from a generally weaker tone around the equity markets. This, in turn, was seen as a key factor that underpinned the safe-haven XAU/USD.

Russian media reported earlier this Thursday that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities. The LPR is located in the Donbas region, a territory internationally recognized to be a part of Ukraine but run by Russian backed separatists. Ukraine, however, denied shelling separatists' territory, suggesting that this could be the false flag that Russia is trying to put out to set a pretext for an imminent invasion. That said, the Organization for Security and Co-operation (OSCE) in Europe has recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday.

Russian Ministry of Defense said that around 10 military convoys have left Crimea and released a video showing a logistics unit coming back to its home base after the completion of drills. Adding to this, the latest update from US satellite image company, Maxar Technologies, showed that Russia has pulled back from the Ukraine border. At the same time, the images showed a lot of Russian equipment is still deployed close to Ukraine and that some new equipment has also arrived recently. The developments did little to ease market fears about an imminent Russian invasion of Ukraine, which, in turn, drove investors towards traditional safe-haven assets, including gold.

The risk-off impulse, along with less hawkish FOMC minutes, showing that policymakers are not set on a particular pace of interest rate hikes, led to a sharp pullback in the US Treasury bond yields. This provided an additional boost to the non-yielding gold. The upward trajectory took along some short-term trading stops placed near the $1,877-$1,879 region. Hence, the latest leg up could further be attributed to some technical buying, which might have already set the stage for a move towards reclaiming the $1,900 mark.

Technical outlook

From a technical perspective, the emergence of dip-buying on Wednesday and the subsequent strong move up favour bullish trades. That said, RSI (14) on the daily chart has moved on the verge of breaking into the overbought territory and warrants some caution before positioning for any further appreciating move. Hence, momentum beyond the $1,900 mark is more likely to confront stiff resistance and remain capped near the $1,908-$1,910 region. This should act as a key pivotal point, which if cleared will set the stage for an extension of the upward trajectory.

On the flip side, the $1,879-$1,877 region now seems to protect the immediate downside ahead of the $1,870-$1,868 support zone. Any further decline would still be seen as a buying opportunity near an eight-month-old descending trend-line resistance breakpoint, around the $1,856-$1,855 zone. The latter should act as a strong base for gold, which if broken decisively might prompt some long-unwinding trade. The XAU/USD could then accelerate the corrective slide towards testing the next relevant support near the $1,832-$1,830 region.

In its February economic assessment report, the Japanese government slashes the overall view of the economy for the first time in five months, in the face of the Omicron covid variant outbreaks.

Key takeaways

Private sector economists have trimmed Japan's current quarter growth forecast to near zero, if not contraction.”

"The economy continues to pick up, but some weaknesses are observed as severe conditions due to the coronavirus linger.”

“The government downgraded its evaluation of private consumption for the first time since September, saying the recovery appeared to be stalling lately.”

"Restaurants, transport, hotels, travel - consumption in all of these services has been weak since late January."

“The government made its first upgrade of capital expenditure assessment in 10 months, reflecting robust business spending figures in fourth-quarter gross domestic product data.”

“The government tweaked its view on wholesale inflation by adding a reference to its "gradual increase.”

Gold has reached its highest level since June 2021. Economists at UBS stick to their forecast of $1,650 by year-end but in the upside scenario, XAU/USD is expected to rise as high as $1,950.

XAU/USD to tank towards $1,350 in the downside scenario

“We are keeping a target of $1,650/oz by end-2022.”

“Upside scenario. Gold December 2022 target: $1,850-1,950/oz. The Fed becomes dovish, introducing another round of quantitative easing measures, or it allows inflation to overshoot, which would once again support investment demand for gold.”

“Downside scenario. Gold Dec 2022 target: $1,350-1,450/oz. Fed becomes even more hawkish, hiking rates aggressively in 2022 and pushing up US real rates strongly, which would likely trigger substantial outflows from gold ETFs.”

See – Gold Price Forecast: XAU/USD to target $1,917 on a weekly close above $1,877 – Credit Suisse

• NZD/USD reversed an intraday dip and turned positive for the third successive day on Thursday.
• Easing Russia-Ukraine tensions undermined the safe-haven USD and extended some support.
• The lack of follow-through buying warrants caution before placing aggressive bullish bets.

The NZD/USD pair climbed to a one-week high during the early European session, though struggled to capitalize on the move beyond the 0.6700 round-figure mark.

The pair attracted some dip-buying near the 0.6660-0.6655 area on Thursday and turned positive for the third successive day amid the emergence of fresh selling around the US dollar. The initial market reaction to news of shelling out of Ukraine faded rather quickly, which was evident from the modest recovery in the global risk sentiment. This, in turn, drove flows away from traditional safe-haven assets, including the USD, and benefitted the perceived riskier kiwi.

Ukraine denied shelling the separatists' area of Donbas, suggesting that this could be the false flag that Russia is trying to put out in order to set a pretext for an imminent invasion. Moreover, the Russian Ministry of Defense said that around 10 military convoys have left Crimea and released a video showing a logistics unit coming back to its home base after the completion of drills. Adding to this, satellite images showed that Russia has pulled back some equipment from the Ukraine border.

Apart from geopolitical developments, less hawkish FOMC minutes released on Wednesday, showing that policymakers are not set on a particular pace of interest rate hikes, weighed on the buck. This, in turn, assisted the NZD/USD pair to build on this week's goodish rebound from sub-0.6600 levels. That said, the lack of strong follow-through buying warrants some caution for aggressive bullish traders and before positioning for any further near-term appreciating move, at last for now.

Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the NZD/USD pair.

Technical levels to watch

Markets remain tentative after the sudden risk-off move seen in the late-Asian session, as contradictory headlines continue to flood the wires amid intensifying Russia-Ukraine conflict.

Organization for Security and Co-operation (OSCE) in Europe has recorded multiple shelling incidents along the line of contact in the East Ukraine in the early hours of Thursday, Reuters reports, citing a diplomatic source on the matter.

OSCE has record use of artillery, based on reports from both sides, the source added.

Meanwhile, The Ukraine military is reportedly saying that Russian-occupying forces fired on village in Luhansk region.

A US satellite image company, Maxar Technologies, showed that Russia has pulled back some equipment from near Ukraine.

Market reaction

Markets are seeing a fresh risk-off wave once again after the Russia-Ukraine crisis resurface.

S&P 500 futures are once again losing 0.50% on the day after recovering entire losses. Gold price shot higher to fresh three-month highs of $1,890 while AUD/USD Is back under 0.7200.

The dollar remained offered on Wednesday, although the bearish run is starting to look a bit tired. A quick diplomatic solution in Ukraine is looking less likely now and, when adding the support offered by Fed hikes front-loading, economists at ING think the bearish-USD run has lost most of its steam.

Reduced USD downside risks

“We see an increasingly high probability that the Russia-Ukraine situation will not take any clear direction in the next few days and may morph into a longer diplomatic game – with some degree of diplomatic risk that may linger across asset prices for longer. The dollar could find some support until we get more clarity on this.”

“Markets are proving reluctant to price out a 50bp March hike (which currently has a 50% implied probability). This should continue to offer some support to the dollar in the dips, and 95.50 could again be the floor for DXY in the case of another round of USD selling. Still, we think it is more likely USD will find some stabilisation/support today.”

Sterling should remain supported in the coming weeks as the UK continues to endorse market’s bets on Bank of England (BoE) tightening. Nonetheless, analysts at Commerzbank do not expect the EUR/GBP to fall below the 0.83 level.

ECB is likely to hike its key rate in the autumn

“The market is likely to stick to its expectations which points towards sterling initially remaining strong against the euro.”

“The ECB is likely to hike its key rate in the autumn. We assume that the situation for the euro will then change, in particular as the market will in all probability have to adjust its expectations for British key rate to the downside at some point.”

“At 0.83 in EUR/GBP the end of the line is likely to have been reached, levels below that do not seem sustainable to me, but will only be short excursions – if we see them at all.”

Economists at Westpac see upside potential for the kiwi towards 0.6735 multi-day. Medium-term, though, NZD/USD could push back down to 0.6500.

Potential for another significant rally in the USD once the Fed cycle is underway

“We expect 0.6735 to be tested.”

“The RBNZ MPS will almost surely deliver a 25bp hike. It should also raise its OCR forecast, to terminate closer to 3.0% than the 2.6% it currently has. And there may be some discussion about balance sheet shrinkage. All that should be enough to maintain a hawkish bias in rates markets and keep the NZD underpinned near-term.”

“Multi-month, we continue to expect another USD rally after the Fed has started hiking in March. That should at least slow any NZD upside, and could even cause a final dip to 0.6500, which could be a buying opportunity.”

On Wednesday, markets seemed to favour the Australian dollar. But economists at ING expect the AUD/USD pair to turn back lower towards the 0.70 level in the coming weeks.

A popular choice, but not for long

“The RBA policy has been a secondary factor for AUD compared to external drivers, and given the recent wide swings in sentiment due to geopolitical tensions, we doubt this will change in the near-term.”

“AUD/USD is attempting a decisive break above 0.7200 at the moment: this could happen within the next few days, but USD strength and multiple external woes for AUD mean that a pull-back to 0.7000 seems more likely in the coming weeks.”

Geopolitical headlines have been driving the EUR/USD pair's action. Euro is set to stay fragile unless pullback of Russian forces is confirmed, FXSTreet’s Eren Sengezer reports.

West is yet to confirm a pullback of Russian forces

“In case the west confirms that Russian forces are pulling back, the euro could find demand on improving market mood. On the other hand, the dollar is likely to preserve its strength as long as the geopolitical uncertainty persists.”

“The first hurdle is located at 1.1400 (psychological level, Fibonacci 23.6% retracement of the latest uptrend) ahead of 1.1450 (static level) and 1.1480 (static level).”

“On the downside, key support seems to have formed at the 1.1340/1.1350 area (Fibonacci 38.2% retracement, 200-period SMA) before 1.1320 (100-period SMA) and 1.1300 (psychological level, Fibonacci 50% retracement).”

See: EUR/USD to tick down toward the 1.1300 level – ING

Economists at Westpac see weakness developing towards 0.70 through the end of the month. But the aussie is expected to find a solid floor at this level.

100-DMA at 0.7245 to cap for now

“The RBA is very likely to hold steady in coming months as many other G10 central banks hike rates, a drag on A$.”

“Commodity price support is much more robust, so dips may be limited to the 0.70 handle rather than below.”

“The 100-DMA at 0.7245 should cap for now.”

The AUD/NZD cross has moved higher from a November 1.0280 low. The pair is now veering towards an overbought reading with the prior bullish momentum waning. Further upticks face 1.0864, the 76.4% Fibonacci retracement marker, Benjamin Wong, Strategists at DBS bank report. 

Momentum is on the wane

“AUD/NZD’s progression should now start to slow as the cross nears a dropped-down resistance line around 1.0799. Further up lies 1.0864 – the 76.4% Fibonacci retracement marker of the 1.1044-1.0280 range grip.” 

“Taking the distance where the cross had travelled from 1.0280-1.0612 and transposing that higher by an equal length, the cross is likely to struggle around 1.0858. Hence, mid-1.08 warrants attention.”

“The weekly Ichimoku chart has the cross slightly perching above its cloud resistance of 1.0755. The technical indicator however is now flashing an overbought condition.”

• GBP/JPY dropped to the 156.00 area during the Asian session, albeit quickly recovered thereafter.
• Russia-Ukraine tensions benefitted the safe-haven JPY and prompted some selling around the cross.
• Bets for additional BoE rate hikes underpinned the British pound and helped limit any further losses.

The GBP/JPY cross quickly recovered around 60 pips from the daily low and was last seen trading with modest intraday losses, near the 156.65 region.

Having struggled to find acceptance above the 157.00 mark, the GBP/JPY cross witnessed heavy selling during the Asian session on Thursday amid anxiety over the Russia-Ukraine standoff. In the latest developments, Western countries warned on Wednesday that there were no signs of de-escalation on the ground from the Russian side.

Apart from Russian media reported this Thursday that rebels in eastern Ukraine accused government forces of shelling their territory. This triggered a fresh wave of the global risk-aversion trade and led to a sharp decline in the equity markets, which benefitted the Japanese yen's safe-haven status and exerted pressure on the GBP/JPY cross.

The knee-jerk reaction, however, turned out to be short-lived after details suggested that the incident occurred within the contested area of Donbas. On the other hand, rising bets for more rate hikes by the Bank of England acted as a tailwind for sterling. This, in turn, assisted the GBP/JPY cross to attract some buying ahead of the 156.00 mark.

Against the backdrop of Tuesday's stronger UK wage growth figures, hotter-than-expected UK inflation figures released on Wednesday lifted expectations for a 50 bps rate hike at the March MPC meeting. In fact, the annual UK inflation rate, as measured by CPI, climbed for the 13th month to its highest level in almost 30 years and came in at 5.5% in January.

That said, tensions over the Northern Ireland Protocol of the Brexit agreement held back bulls from placing aggressive bets around the British pound and capped the upside for the GBP/JPY cross. In the absence of any major market-moving economic releases from the UK, it will be prudent to wait for some follow-through buying before positioning for further gains.

Technical levels to watch

EUR/USD climbed toward 1.1400 on Wednesday but ended up closing the day around 1.1370. Economists at ING expect the pair to inch lower toward 1.1300 as as geopolitics stay in limelight.

Resistance at 1.1400 may continue to hold

“EUR/USD was rejected at the 1.1400 level yesterday, a resistance that may continue to hold today as the dollar could stabilise.”

“The risks for today appear more skewed towards a pull-back to the 1.1300 level as markets may have turned too optimistic too soon on a diplomatic solution in Ukraine.”

NZD/USD has recently been boosted by the pullback in the USD. Analysts at ANZ Bank expect the NZD to appreciate gradually, but there are risks in both directions. 

Volatility to prevail as global central banks shift to tightening mode

 “Our forecasts assume that the NZD/USD appreciates slightly over 2022, eventually topping out at 0.70.”

“On the bright side, we have factors like: Interest rate differentials to other countries suggest the NZD has scope to appreciate. Commodity prices also tend to be influential, and these are rising right now. Growth is also looking robust – but that’s not unique to New Zealand.”

“The kiwi tends to trade as a proxy for global risk of various kinds. Rising tensions in Eastern Europe weighed on sentiment in mid-February. If the situation were to deteriorate, we may see a ‘flight to safety’, which would likely be to the detriment of the NZD.”

“Volatility is low now but it could rise as we inch closer to the first US Federal Reserve’s first rate hike, expected next month. It also remains to be seen how currency markets respond to the cessation of QE in the US next month. The risk is that bond markets don’t take it well.”

The most recent flareup of concerns surrounding Russia supplies have once again placed prices on a trajectory toward $100/b. Economists at TD Securities expect Brent Oil to hit this level before trading back lower towards the mid-$80s.

Brent to move into the mid-$80s in the latter part of 2022 

“If there is an invasion and severe sanctions are imposed on Russia, there would likely be additional substantial price spikes, as supplies are tight, demand will accelerate as COVID-19 restrictions are put aside and driving season approaches.” 

“If there is confirmed evidence of Russia pulling back troops from the border, we could see prices head toward the mid-$80s.”

“Crude may hit $100/b if the probability of severe sanctions against Russia rises, triggering a downgrade in its production estimates. After that, a selloff is expected which would take Brent into the mid-$80s in the latter part of 2022, as both supply and demand respond to the price shock.”

• USD/CHF lacked any firm directional bias and oscillated in a range on Thursday.
• Russia-Ukraine tensions benefitted the safe-haven CHF and acted as a headwind.
• A goodish pickup in the USD demand extended support and helped limit the fall.

The USD/CHF pair seesawed between tepid gains/minor losses through the first half of the trading on Thursday and was last seen hovering in the neutral territory, around the 0.9220 area.

The pair witnessed some selling during the Asian session and dropped back closer to a near two-week low touched in the previous day amid renewed fears of a Russian invasion of Ukraine. In the latest developments, Russian-backed separatists in eastern Ukraine accused government forces of opening fire on their territory four times in the last 24 hours.

This comes after the United States and NATO said on Wednesday that there were no signs of de-escalation on the ground from the Russian side and led to a fresh leg down in the equity markets. The risk-off mood forced investors to take refuge in traditional safe-haven assets, which benefitted the Swiss franc and exerted some pressure around the USD/CHF pair.

The initial market reaction to the cross-border shooting, however, turned out to be short-lived after details suggested that the incident occurred within the contested area of Donbas. This, along with a goodish pickup in the US dollar demand, helped limit any further losses and assisted the USD/CHF pair to attract some buying in the vicinity of the 0.9200 mark.

The USD uptick, however, lacked strong bullish conviction amid a sharp pullback in the US Treasury bond yields, led by the global flight to safety. Apart from this, Wednesday's less hawkish FOMC meeting minutes, signalling a more measured and data-dependent approach from central bank officials, could act as a headwind for the buck and the USD/CHF pair.

Even from a technical perspective, the overnight downfall confirmed a near-term bearish break through a familiar trading band held over the past one week or so. The fundamental/technical backdrop suggests that the path of least resistance for the USD/CHF pair is to the downside. That said, bearish traders are likely to wait for sustained weakness below the 0.9200 mark.

Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/CHF pair. The focus, however, will remain on geopolitical developments.

Technical levels to watch

• DXY reverses the recent downside and re-targets 96.00 and above.
• US yields extend the leg lower amidst rising geopolitical risks.
• Initial Claims, Philly Fed Index next of note in the US docket.

The greenback regains composure and manages to leave behind part of the recent weakness when tracked by the US Dollar Index (DXY).

US Dollar Index looks to yields, geopolitics

The index posts decent gains after two daily pullbacks in a row on Thursday and ahead of the opening bell in the old continent.

The bounce in the dollar comes pari passu with rising disbelief over the de-escalation of tensions in the Russia-Ukraine front, all following confusing headlines regarding an apparent pullback of Russian troops from the Ukrainian border.

In the meantime, US yields add to the gradual weekly retracement although they manage well to keep business close to the area of recent peaks. On this, yields showed some bull steepening after the FOMC Minutes signalled the Committee’s plans to start the normalization of the monetary conditions soon and the reduction of the balance sheet later in the year. In addition, members saw inflation risks tilted to the upside and the labour market closer to full employment.

Back to the Fed’s tightening prospects, CME Group’s FedWatch Tool now sees the probability of a 25 bps rate hike on March 16 at around 65% vs. just above 40% on Wednesday.

In the US data space, Initial Claims take centre stage seconded by the Philly Fed Index, Housing Starts and Building Permits.

What to look for around USD

The resumption of the risk-off mood benefits the greenback and lent extra support to DXY. Indeed, the recent corrective downside in the buck was deemed as temporary only, as the positive stance in the dollar remains underpinned by the current elevated inflation narrative as well as the probability of a 50 bps rate hike by the Fed at the March gathering. Looking at the longer run, and while the constructive outlook for the greenback appears well in place for the time being, 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: Building Permits, Housing Starts, Initial Claims, Philly Fed Manufacturing Index (Thursday) – CB Leading Index, Existing Home Sales (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. Debt ceiling issue.

US Dollar Index relevant levels

Now, the index is gaining 0.08% at 95.85 and a break above 96.43 (weekly high Feb.14) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.67 (weekly low Feb.16) seconded by 95.17 (weekly low Feb.10) and then 95.13 (weekly low Feb.4).

Responding to the Russian media agencies’ claims, Ukraine denies shelling separatists' positions in East Ukraine.

Earlier today, a sudden risk-off wave shook markets after Sputnik reported that the Ukrainian military forces fired mortars and grenades in four Luhansk People's Republic (LPR) localities, which is located in the Donbas region, internationally recognized to be a part of Ukraine but run by Russian-backed separatists.

Markets remain unnerved as it could be a false flag from the Russian while Ukraine declines the firing.

S&P 500 futures is trimming losses, now trading back above 4,450, down 0.31% on the day. AUD/USD is looking to recapture 0.7200 while the US dollar is treating from daily highs of 96.11.

• EUR/GBP fades bounce off 61.8% Fibo., extends Wednesday’s pullback from weekly high.
• Rejection of bullish chart pattern, downbeat Momentum line favor sellers.
• 200-HMA, fortnight-old horizontal area add to the upside filters.

EUR/GBP remains fragile around 0.8360, despite recently bouncing off a daily low. In doing so, the quote remains downbeat for the second consecutive day after stepping back from a weekly high the previous day.

The reason could be linked to the cross-currency pair’s sustained break of a short-term bullish channel heading into Thursday’s European session. Also keeping bears hopeful is the Momentum line.

However, the 61.8% Fibonacci retracement (Fibo.) of February 03-07 upside and the weekly bottom, respectively near 0.8355 and 0.8345, challenge the short-term EUR/GBP bears.

Following that, the 0.8300 threshold may offer an intermediate halt during the downward trajectory targeting the monthly low of 0.8284.

On the contrary, the stated channel’s support line, now resistance around 0.8370, restricts the immediate upside of the quote.

Though, major attention will be given to the convergence of the 200-HMA and channel’s upper line, close to 0.8410, during the EUR/GBP upside.

Also challenging the pair’s upside momentum is the two-week-long horizontal resistance near 0.8435-40.

EUR/GBP: Hourly chart

Trend: Further weakness expected

Gold price is building on Wednesday’s impressive rebound from the $1,850 level, now challenging the three-month highs at $1,880. According to FXStreet’s Dhwanie Mehta, XAU/USD could recapture $1,900 amid heightened geological tensions.

XAU/USD eyes acceptance above $1,880, bullish potential remains intact

“Risks that the escalation of the years-long conflict with Donbass separatists could intensify tension between Russia and the West spooked investors, as a flight to safety returned with full force, boosting the demand for gold”

“Gold is flirting with the multi-month high level of $1,880, biding time to make a big break higher. The next upside target is envisioned at $1,900, the level unseen since June 2021. Further up, the June 1 high of $1,917 will be put to test once again.”

“Any retracement from higher levels will challenge the daily lows of $1,868 first before extending the downside towards the $1,850 psychological barrier. The next cushion awaits at Tuesday’s low of $1,845.”

See – Gold Price Forecast: XAU/USD to target $1,917 on a weekly close above $1,877 – Credit Suisse

Here is what you need to know on Thursday, February 17:

Markets remain cautious on Thursday as investors struggle to figure out whether or not there will be a military conflict between Russia and Ukraine. US Treasury bond yields are pushing lower, the US Dollar Index is edging higher and US stocks futures are falling between 0.3% and 0.5%. Later in the day, the US economic docket will feature the weekly Initial Jobless Claims and Housing Starts data but the market action is likely to continue to be driven by geopolitical headlines.

During the Asian trading hours, Sputnik News reported Ukraine has fired mortar shells and grenades on four Luhansk People's Republic (LPR) locations, triggering a fresh bout of flight to safety. Ukraine has already denied this claim.

Meanwhile, Mikk Marran, director-general of the Estonian Foreign Intelligence Service, said on Thursday they were witnessing Russian military units moving toward the Ukrainian border. On a similar note, US Secretary of State Antony Blinken told MSNBC that they have not yet seen any pullback of Russian forces. On a positive note, the Russian defence ministry announced that 10 military convoys have left Crimea after military drills but this headline doesn't seem to be helping the market mood improve.

Late Wednesday, the US Federal Reserve released the minutes of its January policy meeting. The publication showed that most participants were in favour of removing accommodation at a faster pace than currently anticipated if inflation does not move down as they expect. 

EUR/USD climbed toward 1.1400 on Wednesday but ended up closing the day around 1.1370. After falling toward 1.1300 on risk-aversion early Thursday, the pair has managed to rebound to the 1.1350 area.

GBP/USD stays under modest bearish pressure in the European morning and trades below 1.3600. Russia said on Wednesday that they will retaliate in case the UK were to impose new sanctions against Moscow over the conflict with Ukraine.

USD/JPY is edging lower and trading below 115.50 with the JPY finding demand as a safe haven. Earlier in the day, the data from Japan showed that Machinery Orders increased by 3.6% on a monthly basis in December, surpassing the market expectation for a decrease of 1.8% by a wide margin.

Gold continues to react sharply to changes in risk sentiment. After falling below $1,850, XAU/USD gained traction and closed decisively higher near $1,870 on Thursday. The pair continues to push higher toward $1,880 early Thursday.

Bitcoin registered modest losses on Wednesday and trades in a tight range near $44,000 in the European morning. Ethereum is having a hard time staging a recovery and closes in on $3,000 after closing in the red on Wednesday.

• USD/INR struggles to keep bounce off weekly low, pauses three-day declines.
• Calls over RBI rate-hike eases after Governor’s downbeat economic forecasts.
• Allegations over Ukraine’s violation of ceasefire recently triggered risk-off mood, Fed-linked anxiety, Sino-American tensions also weigh on sentiment.
• Second-tier US data, Fedspeak will join risk catalysts for near-term direction.

USD/INR pares intraday gains around 75.10 during the first positive day in four ahead of Thursday’s European session.

The Indian rupee (INR) pair’s recent upside could be linked to the market’s rush to risk-safety due to Sputnik’s update conveying Ukraine’s violation of the ceasefire and the counter news from RIA afterward.

Sputnik mentioned that Ukraine fired mortar shells and grenades on Luhansk People's Republic (LPR) locations. Following that, Reuters quoted other sources to placate the bears while reporting, “Russian-backed rebels in eastern Ukraine accused Kyiv government forces on Thursday of using mortars to attack their territory, in violation of agreements aimed at ending the conflict, the RIA news agency said.”

At home, receding hopes of a hawkish performance by the Reserve Bank of India (RBI) also propels the USD/INR rebound. “Expectations of rate hike by India's central bank is pushed back after the Reserve Bank of India (RBI) Governor Shaktikanta Das lowered inflation and growth forecasts as the RBI aims to stay focused on spurring economic activity,” Reuters quotes Mint.com.

Elsewhere, Fed policymakers’ hesitance to back the 0.50% rate-hike for March gains little acceptance from the market as the recent data has been strong enough to underpin heavy rate lifts, which in turn underpin USD recovery.

While portraying the mood, US Treasury yields and stock futures remain on the back foot whereas the US Dollar Index (DXY) prints mild gains around 95.90 by the press time.

Looking forward, speculations concerning the next moves of the RBI and Fed may join geopolitical concerns to entertain USD/INR traders.

Technical analysis

A five-week-old ascending trend line joins 21-DMA and 50-DMA to highlight 74.90 as the tough nut to crack for USD/INR bears.

USD/JPY should keep the 114.75-116.05 range unchanged for the time being, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for ‘upside bias’ in USD did not materialize as it traded between 115.34 and 115.78. The underlying tone appears to have softened somewhat and USD could drift lower but a sustained drop below 115.20 appears unlikely. Resistance is at 115.60 followed by 115.80.”

Next 1-3 weeks: “There is not much to add to our update from Monday (14 Feb, spot at 115.40). As highlighted, the current movement is viewed as part of a consolidation and USD is likely to trade between 114.75 and 116.05 for now.”

Open interest in natural gas futures markets rose for the third session in a row on Wednesday, now by around 13.2K contracts considering advanced prints from CME Group. Volume followed suit and added to the previous build, this time by nearly 77K contracts.

Natural Gas could revisit the $5.00 mark

Prices of natural gas extended the upside for yet another session on Wednesday. The leg higher was in tandem with increasing open interest and volume, leaving the door open for the continuation of the uptrend in the very near term and with the next target at the $5.00 mark per MMBtu.

NZD/USD could extend the uptrend to the 0.6735 level in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for NZD to ‘trade sideways’ was incorrect as it soared and closed on a firm not at 0.6680 (+0.62%). Rapid build-up in momentum is likely to lead to further NZD strength. However, any advance is unlikely to challenge last week’s high at 0.6735 (there is another resistance at 0.6720). Support is at 0.6665 but only a breach of 0.6650 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Our view from Tuesday (15 Feb, spot at 0.6620) where a break of 0.6580 could trigger a decline in NZD was invalidated as it rose above our ‘strong resistance’ level of 0.6690 after NY close. The rapid rise has shifted the risk to the upside and NZD could strengthen to 0.6735. Looking ahead, the next resistance above 0.6735 is at 0.6765. Overall, only a breach of 0.6635 (‘strong support’ level) would indicate that the upside risk has dissipated.”

• Asia-Pacific shares drift lower on news over Ukraine’s violation of ceasefire.
• US dislike for China’s failures to meet Phase 1 deal targets also weigh on mood.
• Chatters surrounding Fed, PBOC and Japan keep traders hopeful.
• Mixed Aussie data, doubts of RBNZ rate hike favor ASX 200, NZX 50.

Market sentiment remains sour during Thursday’s Asian session, initially due to the indecision over geopolitical and Fed-linked concerns before the news from Russia roiled the mood.

The doubts over Russia’s rolling back of some troops from the border and the US-China Phase 1 deal headlines were challenging the market sentiment. However, major attention was given to the news from Sputnik which mentioned that Ukraine fired mortar shells and grenades on Luhansk People's Republic (LPR) locations.

It’s worth noting that Reuters quoted other sources to placate the bears while reporting, “Russian-backed rebels in eastern Ukraine accused Kyiv government forces on Thursday of using mortars to attack their territory, in violation of agreements aimed at ending the conflict, the RIA news agency said.”

Amid these plays, MSCI’s index of Asia-Pacific shares ex-Japan rises 0.30% intraday while Japan’s Nikkei 225 dropped 0.75% heading into the European session.

Moving on, mixed employment data from Australia joined the UK-Aussie trade talks to help ASX 200 print mild gains. Additionally entertaining Aussie equity bulls were headlines concerning Australia’s Woodside Petroleum Ltd. and Crown Resorts.

Further, NZX 50 paid a little heed to the calls from an ex-RBNZ official favoring a 0.75% rate hike.

Chinese stocks are mildly positive at the latest amid speculations that the People’s Bank of China (PBOC) has scope to ease further amid downbeat inflation and recently firmer yuan.

Elsewhere, Indonesia’s IDX Composite drops 0.80% while hosting G20 Finance Ministers whereas Hong Kong’s Hang Seng drops as Beijing pushes the political partner to overcome the covid crisis.

Stocks in India track mild gains of China whereas US Treasury yields and stock futures remain on the back foot by the press time.

It should be noted that the Fed policymakers’ hesitance to back the 0.50% rate-hike for March gains little acceptance from the market as the recent data has been strong enough to push Fed towards heavy rate lifts. Hence, today’s Fedspeak and second-tier data will be important to watch. Also important will be geopolitical and trade headlines.

According to preliminary figures from CME Group for crude oil futures markets, investors trimmed their open interest positions for the fourth consecutive session on Wednesday, now by around 15.6K contracts. On the other hand, volume, advanced for the second consecutive day, this time by around 207.4K contracts.

WTI: Immediate up barrier emerges at $95.79                               

Tuesday’s decline in prices of the WTI was accompanied by shrinking open interest, indicative that a deeper pullback looks not favoured for the time being. Against that, crude oil prices could attempt to retest the YTD high at $95.79 per barrel (February 14).

In opinion of FX Strategists at UOB Group, GBP/USD needs to clear 1.3645 to allow for extra gains in the next weeks.

Key Quotes

24-hour view: “Yesterday, we expected GBP to ‘trade within a range of 1.3500/1.3590’. However, GBP rose to 1.3600 before closing on a firm note at 1.3583 (+0.30%). Upward momentum is beginning to build and the risk for today is on the upside. However, in view of the nascent build-up in momentum, the major resistance at 1.3645 is unlikely to come under threat for now (there is another resistance at 1.3620). Support is at 1.3565 followed by 1.3545.”

Next 1-3 weeks: “We have held the same view since last Friday (11 Feb, spot at 1.3550) where GBP is likely trade between 1.3450 and 1.3645 for now. After trading sideways for several days, shorter-term upward momentum is beginning to build. That said, GBP has to close above 1.3645 before a sustained advance is likely. The chance of GBP closing above 1.3645 is not high for now but it would increase as long as GBP does not move below 1.3520 within these couple of days. Looking ahead, the next resistance above 1.3645 is another rather strong level at 1.3680.”

Open interest in gold futures markets resumed the uptrend and went up by more than 9K contracts on Wednesday according to flash data from CME Group. Volume, instead, shrank for the third session in a row, now by around 74.7K contracts.

Gold looks for a test of $1,900

Gold prices reversed Tuesday’s strong pullback and resumed the upside on Wednesday, revisiting the $1,870 area per ounce troy amidst increasing open interest. That said, the continuation of the uptrend to, initially, the $1,900 mark remains a palpable possibility in the very near term.

• GBP/USD picks up bids to pare intraday losses, mainly due to the sudden risk-off play.
• Russian media spreads news of Ukraine’s violation of ceasefire, Ukraine military rebels were marked responsible elsewhere.
• Bullish MACD signals favor further upside but a short-term resistance line test buyers.
• Key Fibonacci retracement levels add to the trading filters inside nearby trading range.

GBP/USD reverses the latest losses towards regaining the 1.3600 threshold, around 1.3585 heading into Thursday’s London open.

The cable pair initially dropped 60 pips on news that Ukrainian forces Ukraine fired mortar shells and grenades on Luhansk People's Republic (LPR) locations, per Sputnik.

Read: Breaking: S&P 500 futures drop as Ukraine's military fires mortar shells and grenades at four LPR locations

However, a convergence of the 200-SMA and 50% Fibonacci retracement (Fibo.) of January 13-27 downside, around 1.3550, triggered the quote’s corrective pullback that currently aims for a downward sloping trend line from January 20, near 1.3600.

Although the bullish MACD signals keep buyers hopeful, 61.8% Fibo. adds to the upside filters around 1.3605 to challenge the quote’s further advances.

In a case where GBP/USD rises past 1.3605, the upper line of the monthly trading range near 1.3630 will test the buyers.

Meanwhile, pullback moves below 1.3550 support confluence will aim for the 38.2% Fibonacci retracement and lower end of the nearby range, around 1.3510 and 1.3480 respectively.

During the GBP/USD weakness past-1.3480, 23.6% Fibo. level of 1.3450 may test the bears before directing them to January’s low of 1.3357.

GBP/USD: Four-hour chart

Trend: Further upside expected

FX Strategists at UOB Group see the selling pressure alleviated in EUR/USD above the 1.1400 mark.

Key Quotes

24-hour view: “Yesterday, we highlighted that ‘the rebound in EUR has scope to extend but is unlikely to break the strong resistance at 1.1400’.Our view was not wrong as EUR rose to 1.1395 before closing at 1.1373 (+0.15%). Upward momentum still appears to be lackluster and EUR is unlikely to strengthen much further. For today, EUR is more likely to trade sideways, expected to be within a range of 1.1340/1.1400.”

Next 1-3 weeks: “Our view from yesterday (16 Feb, spot at 1.1355) still stands. As highlighted, oversold shorter-term conditions suggest that it may take a while before EUR head lower again. However, a breach of 1.1400 (no change in ‘strong resistance’ level from yesterday) would indicate that the downward pressure that started late last week has dissipated.”

• AUD/USD witnessed a sharp pullback from a one-week high touched earlier this Thursday.
• Russia-Ukraine tensions weighed on the risk sentiment and the perceived riskier aussie.
• Bets for an RBA rate hike in 2022 extended some support and helped limit the downside.

The AUD/USD pair quickly recovered a few pips from the Asian session low and was last seen trading with modest intraday losses, around the 0.7180-0.7185 region.

Following an early uptick to a one-week low, the AUD/USD pair witnessed a turnaround from the 0.7215 region and dropped to a daily low, around mid-0.7100s amid a fresh wave of risk-aversion trade.  Reports that Ukrainian forces have fired mortars and grenades on the LPR region took its toll on the global risk sentiment, which benefitted the safe-haven US dollar and drove flows away from the perceived riskier aussie.

LPR is Luhansk People's Republic located in Luhansk Oblast in the Donbas region, a territory internationally recognized to be a part of Ukraine but run by Russian backed separatists. This comes amid doubts on Russia's claim of a military pullback from the Ukraine border, which revived fears of an imminent Russian invasion of Ukraine. In fact, the United States and NATO said that there were no signs of de-escalation on the ground.

The downside, however, remains cushioned, at least for now, amid rising bets for an interest rate hike by the Reserve Bank of Australia (RBA). Economists at two of Australia's major lenders - Australia & New Zealand Banking Group Ltd. and Commonwealth Bank of Australia - said called for the first-rate increase by September 2022. Apart from this, a positive surprise from the domestic jobs data, showing that the number of employed people rose by 12.9K in January, acted as a tailwind and helped limit losses for the AUD/USD pair.

Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. The focus, however, will remain on geopolitical developments, which will play continue to play a key role in influencing the broader market risk sentiment. This, along with the USD price dynamics, should produce some trading opportunities around the AUD/USD pair.

Technical levels to watch

• USD/CAD grinds higher around intraday top during the first positive day in three.
• News of Ukraine’s violation of ceasefire propelled USD, oil prices.
• Canada inflation came in stronger, US data was firmer too but FOMC minutes posed cautious optimism.
• No major data on calendar, Fedspeak, risk catalysts are the key for fresh impulse.

USD/CAD stays firmer around 1.2720, following a quick run-up to 1.2734, as market sentiment sour on geopolitical news from Russia during early Thursday morning in Europe.

It should, however, be noted that the recently upbeat prices of WTI crude oil, Canada’s main export item, seem to challenge the USD/CAD bulls of late.

That said, the market sentiment soured on Sputnik’s news saying, “Ukraine fired mortar shells and grenades on Luhansk People's Republic (LPR) locations.” Following that, Reuters quoted other sources to mention, “Russian-backed rebels in eastern Ukraine accused Kyiv government forces on Thursday of using mortars to attack their territory, in violation of agreements aimed at ending the conflict, the RIA news agency said.”

The risk-off mood can well be witnessed in the quick recovery of the US Dollar Index (DXY) and WTI crude oil prices, up 0.12% and 1.7% daily in that order. Also portraying the risk-aversion wave is the downbeat performance of US Treasury yields and stock futures.

Previously, doubts over Russia’s rolling back of some troops from the border and the US-China Phase 1 deal headlines were challenging the market sentiment. However, the oil prices were bearing the burden of positive news concerning the US-Iran deal on denuclearization.

That said, the Canadian Consumer Price Index (CPI) rose at an annual pace of 5.1% in January, above median economist forecasts for a pace of 4.8% and above December's 4.8% YoY rate of price growth, according to data released by Statistics Canada on Wednesday. On the other hand, US Retail Sales and Industrial Production rose notably beyond the market forecasts and previous readouts with the latest MoM figures of 3.8% and 1.4% respectively in January.

To sum up, USD/CAD traders will pay more attention to the risk catalysts than the second-tier US data and Fedspeak for fresh impulse.

Technical analysis

MACD conditions aren’t supporting rebound, which in turn challenge the USD/CAD buyers until the quote crosses a six-week-long resistance line, near 1.2780 by the press time.

On the contrary, a downside break of the stated immediate support line, near 1.2670, will highlight convergence of the 100-DMA and 50% Fibonacci retracement (Fibo.) of October-December 2021 upside, close to 1.2625, as the key level for bears to break.s

• A combination of factors dragged USD/JPY lower for the second successive day on Thursday.
• Russia-Ukraine tensions weighed on the risk sentiment and benefitted the safe-haven JPY.
• Bears also took cues from retreating US bond yields, though stronger USD helped limit losses.

The USD/JPY pair witnessed some selling during the latter part of the Asian session and dropped to a three-day low, around the 115.10 region in the last hour.

The pair added to the previous day's modest losses and remained under bearish pressure for the second successive day on Thursday amid renewed fears of a Russian invasion of Ukraine. The United States and NATO raised doubts on Russia's claim of a military pullback from the Ukraine border and said that there were no signs of de-escalation on the ground. This, in turn, kept a lid on the recent optimistic move in the markets, which continued benefitting the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair.

The latest leg of a sudden drop over the past hour or so followed reports that Ukrainian forces have fired mortars and grenades on the LPR region. LPR is Luhansk People's Republic located in Luhansk Oblast in the Donbas region, a territory internationally recognized to be a part of Ukraine but run by Russian backed separatists. This, in turn, took its toll on the risk sentiment and triggered a fresh leg down in the equity markets, which forced investors to take refuge in traditional safe-haven assets, including the JPY.

The flight to safety led to modest pullback in the US Treasury bond yields, which was seen as another factor that inspired bearish traders and dragged the USD/JPY lower. That said, resurgent US dollar demand extended some support and helped limit any deeper losses, at least for the time being. The pair, so far, has held well within its weekly trading range. This further makes it prudent to wait for some follow-through selling below the weekly low, around the key 115.00 psychological mark before positioning for any further losses.

Nevertheless, the market focus will remain on geopolitical developments, which will continue to play a key role in influencing the broader market risk sentiment and driving demand for the safe-haven JPY. Later during the early North American session, traders will take cues from the US economic docket - featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields, should provide some impetus to the USD/JPY pair and produce short-term trading opportunities.

technical levels to watch

• NZD/USD snaps two-day uptrend as risk appetite roils on headlines claiming Ukraine violated ceasefire.
• US T-bond yields slumped, DXY rallied and gold turned positive as traders rushed to risk-safety on the news.
• Ex-RBNZ officials raised concerns over 0.75% rate-hike ahead of next week’s monetary policy meeting.
• Fedspeak, second-tier US data could entertain traders but geopolitics are the key.

NZD/USD licks its wounds around 0.6680, down 0.11% intraday while posting the first daily loss in three heading into Thursday’s European session.

In doing so, the pair consolidates the 40-pips drop following the news from Russia that Ukraine fired mortar shells and grenades on Luhansk People's Republic (LPR) locations, per Sputnik. The latest corrective pullback could be linked to the market’s doubt over the news due to the lack of confirmations from other sources.

The same happened when Moscow announced rolling back of some troops from borders but the West, Ukraine and some of the European diplomats dashed optimism.

Elsewhere, the US-China trade tussles renew amid Beijing’s failures to respect Phase 1 deal targets. The Wall Street Journal said, “To the extent that China’s unfair, nonmarket and distortive policies and practices persist, the United States is prepared to use domestic trade tools strategically as needed in order to achieve a more level playing field with China for US workers and businesses.” 

Earlier in the day, a former Reserve Bank of New Zealand (RBNZ) Chairman and Chief Economist, said In an MNI interview on Thursday that he believes the central bank should hike the benchmark rate by 75-basis points (bps) at its next week’s policy meeting.

It should be noted that the policymakers refrain from hawkish performance in the next Fed meeting, per Wednesday’s Federal Open Market Committee (FOMC) Minutes join upbeat US data to also weigh on the market sentiment and favor the USD.

Amid these plays, stock futures print losses and the US Treasury yields drop whereas the traditional safe-havens like gold benefit from the rush to risk-safety.

That said, NZD/USD traders will pay close attention to the risk-related headlines for more updates while the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, will decorate the calendar.

Technical analysis

The previous support line from January 28 restricts the immediate upside of NZD/USD prices around 0.6700, a break of which will direct the quote towards the 50-DMA level near 0.6735.

Meanwhile, 21-DMA and the latest swing low, respectively around 0.6650 and 0.6590, limit short-term declines of the Kiwi pair.

• EUR/USD takes offers to snap two-day rebound on news that Ukraine violated ceasefire.
• ECB policymakers have recently been hawkish, FOMC refrained to back 0.5% rate hike in March.
• Strong US data pressures Fed, yields drop but DXY regains upside momentum on fresh risk-aversion wave.
• Comments from central bankers, ECB Economic Bulletin and second-tier data decorate calendar.

EUR/USD extends pullback from the weekly top, pressured around intraday low near 1.1330 as the USD cheers a surprise swing to risk-aversion during early Thursday morning in Europe.

That said, the US Dollar Index (DXY) suddenly reversed from a three-day downtrend to post the heavy daily gains around 96.00 after Sputnik reports suggest Ukraine violated ceasefire on four LPR localities. The markets previously cheered the roll-back of Russian military forces from the border before the West, Ukraine and Estonian updates raised doubts over Moscow’s moves.

Read: Breaking: S&P 500 futures drop as Ukraine's military fires mortar shells and grenades at four LPR locations

While portraying the mood, stock futures print losses and the US Treasury yields drop whereas the traditional safe-havens like gold benefit from the rush to risk-safety.

Previously, the Federal Open Market Committee (FOMC) Minutes showed hawkish concerns among the board members but marked no strong support for a 0.50% rate hike in March, which may be due to the pre-inflation analysis. “Federal Reserve officials agreed last month that it was time to tighten monetary policy, but also that decisions would depend on a meeting-by-meeting analysis of data, according to minutes of the most recent policy meeting,” reported Reuters.

On the other hand, European Central Bank Governing Council member and Latvian Central Bank Governor Martins Kazaks said on Wednesday that an interest rate hike this year is "quite likely". The policymaker, however, recommends a careful, phased policy adjustment and said that money market bets, which attribute some possibility to a first ECB rate hike by the end of H1 2022, are somewhat too harsh.

It’s worth noting that the recent positive rhetoric from the ECB policymakers will be on test today by the ECB Economic Bulletin, published eight times in a year. Also important will be comments from ECB Chief Economist Philip Lane.

Talking about the US data, Retail Sales and Industrial Production rose notably beyond the market forecasts and previous readouts with the latest MoM figures of 3.8% and 1.4% respectively in January. The same raises prospects of the Fed’s rate-hike and also highlights the latest disappointment over the policymakers’ refrain to act.

Moving on, the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, will decorate the calendar. However, major attention will be given to Fedspeak and updates from G20, not to forget Russia-Ukraine news, for clear direction.

Technical analysis

Unless breaking convergence of the 21-DMA and 50-DMA, around 1.1330, the EUR/USD prices may aim for the 100-DMA level of 1.1400. However, the further upside becomes difficult until crossing the 1.1485, comprising a five-week-old horizontal area.

• Gold price gets a fresh lift from the sudden risk-off move, despite the USD bid.
• Ukraine’s armed forces reported to fire grenades and mortars at four LPR localities.
• Less hawkish Fed minutes add to the upside in gold while geopolitical tensions underpin.

Gold price is seeing a buying resurgence and looks to challenge the three-month highs of $1,880 once again, as a fresh wave of risk-aversion hit markets on the Ukrainian firing reports.

The Russian media agency, Sputnik, reported that the Ukrainian military forces shot mortars and grenades in four Luhansk People's Republic (LPR) localities.

The LPR is located in Luhansk Oblast in the Donbas region, which is internationally recognized to be a part of Ukraine but run by Russian-backed separatists.

On the above headlines, gold price jumped from daily lows of $1,868 to reach highs at $1,876 before retracing slightly to $1,875, where it now wavers.

developing story ...

S&P 500 futures drop as Ukraine's military fires mortar shells and grenades at four LPR locations

• AUD/USD remains firmer around one-week high during three-day uptrend.
• Firmer RSI, sustained trading beyond 200-SMA keeps buyers hopeful.
• Confirmation of bullish chart pattern becomes necessary for further upside.
• The monthly support line adds to the downside filters.

AUD/USD picks up bids to refresh one-week high around 0.7215, up 0.16% intraday during Thursday’s Asian session. In doing so, the Aussie pair rises for the third consecutive day while also bracing for a third consecutive weekly gain.

It’s worth noting that the risk barometer pair’s performance during the last one-month teases an inverse Head-and-Shoulders (H&S) bullish chart pattern.

Given the quote’s successful break of the 200-SMA, coupled with the upbeat RSI, the AUD/USD prices are well-directed to the stated formation’s neckline, around 0.7245.

However, a clear upside break of the 0.7245 will boost buyer’s morale with a 300-pip theoretical target based on the H&S pattern.

For the short-term, the monthly peak of 0.7250 and January’s high near 0.7315 could lure the pair buyers.

Alternatively, pullback moves remain elusive beyond the 200-SMA level of 0.7161, a break of which will direct AUD/USD sellers towards an upward sloping trend line from February 01, close to 0.7100 by the press time.

In a case where the quote drops below 0.7100, the odds of its southward trajectory targeting the sub-0.7000 area can’t be ruled out.

AUD/USD: Four-hour chart

Trend: Further upside expected

Indonesian Finance Minister Sri Mulyani Indrawati said on Thursday, “global economy continues to recover but recovery to be affected by inflation, higher interest rate, supply chain disruption, growing geopolitical tension.”

Additional quotes

Separately, Indonesian President Joko Widodo, popularly known as Jokowi, was reported, as saying that “in current situation, this is not the time for rivalry,” referring to the Russia-Ukraine geopolitical conflict.

Further comments

Market reaction

In reaction to these above comments, the Indonesian rupiah is correcting sharply from six-week highs of 14,249 reached a day before.

USD/IDR is trading at 14,275, up 0.16% on the day, as of writing.

In an MNI interview on Thursday, Arthur Grimes, a former Reserve Bank of New Zealand (RBNZ) Chairman and Chief Economist, said that he believes the central bank should hike the benchmark rate by 75-basis points (bps) at its next week’s policy meeting.

Key quotes

“Called on for the bank to begin selling some of the NZD50 billion in bonds purchased as part of the recent pandemic programme of Quantitative Easing.”

“Been urging the RBNZ to tighten policy for around 18 months, and that he considered current policy settings to be "ludicrous."

"To think of unemployment at 3.2%, with 6 % inflation, and if they increase rates by 25 basis points then the Official Cash Rate will be at 1%, it just doesn't make sense."

“25 basis points next week is "too little too late."

"They need to do a real big move now, say 75 basis points now and then another 50 and then another 50.”

“It was a "bizarre" situation for real interest rates to be negative with the economy overheating, even as house prices - up 27.4% last year according to research house CoreLogic - start to cool.”

Market reaction

The kiwi dollar is coming out as strongest amongst the G10 currencies so far this Thursday’s Asian trading, despite the mixed market mood.

NZD/USD is adding 0.39% on the day, trading at 0.6704, as of writing.

• USD/CNH drops for the fourth consecutive day to renew monthly bottom.
• Room for further easing by PBOC, strong FDI in China favor CNH buyers, Sino-American trade tussles test the pair bears.
• USD tracks softer yields amid indecision over Fed’s next move, Russia-Ukraine story.
• Fedspeak, G20 and second-tier US data in focus.

USD/CNH remains pressured around the weekly bottom, also the lowest levels since January 26, while taking rounds to $6.3300 during Thursday’s Asian session.

In doing so, the offshore Chinese yuan (CNH) prints a four-day downtrend while cheering the downbeat US dollar amid mixed concerns surrounding China.

Softer inflation and upbeat Foreign Direct Investment (FDI) figures for January enable the People’s Bank of China (PBOC) to hold onto the dovish bias. That said, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) both reported downbeat figures on Wednesday while an industry report shares on Reuters hint at the further escalation in the FDI and scope for more infrastructure spending.

On the other hand, the Wall Street Journal said, “To the extent that China’s unfair, nonmarket and distortive policies and practices persist, the United States is prepared to use domestic trade tools strategically as needed in order to achieve a more level playing field with China for US workers and businesses,” 

Elsewhere, downbeat concerns by the US Federal Open Market Committee (FOMC) Minutes and doubts over de-escalation of the Russia-Ukraine tensions weigh on the US Treasury yields and stock futures, which in turn drag US Dollar Index (DXY) towards posting a three-day downtrend near 95.78.

Although optimism surrounding China’s economic performance contrasts the trade position, the widening of the Fed versus PBOC battle may help the USD/CNH bears. That said, the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, will join Fedspeak and updates from G20, not to forget news over Russia, to direct short-term moves.

Technical analysis

While early February’s low near $6.3490 guards short-term upside of the USD/CNH pair, a downward sloping trend line from May 31, 2021, near $6.3215 by the press time, becomes a tough nut to crack for bears.

Despite widening peripheral spreads in Europe, the EUR is likely to hold an upper hand against the US dollar, pound and the yen in the coming months.

Key quotes

“We remain bullish on EUR versus the USD, GBP, and JPY.”

“Widening peripheral spreads in Europe may keep the ECB from normalizing too quickly, but we don't think it will fully blunt the EUR's rise as the ECB is likely to hike rates to 0% by March 2023.”

“Positioning has moved meaningfully in the short term, presenting a key risk to watch, though we think the more medium-term theme of fund flow reallocation should keep the EUR on an upward path over time.”

In an interview with AFP early Thursday, US Treasury Secretary Janet Yellen noted that the American economic recovery remains on track while expressing her concerns over soaring inflation.

Key quotes

"Concerned" about inflation running at its highest level in decades.”

“Further "global fallout" likely if the West moves ahead with punishing sanctions on Russia over the Ukraine crisis.”

“’The Federal Reserve will act in an "appropriate way" to contain inflation while ensuring the US recovery continues.’

“The health of the world's largest economy is fundamentally sound thanks to policies that have mitigated the impact of the pandemic.”

Market reaction

The US dollar index is attempting a bounce after falling for two consecutive days, little affected by Yellen’s concerns on inflation.

The spot was last seen trading at 95.78, up 0.09% on the day.

• GBP/JPY pares intraday losses after early Asian pullback probed two-day uptrend.
• Sustained trading above the key moving averages, firmer Momentum line keeps buyers hopeful.

GBP/JPY braces for a three-day uptrend, battles support-turned-resistance around 156.90 by the press time of Thursday’s Asian session.

Given the quote’s successful trading above 50-SMA and 100-SMA, respectively around 156.50 and 155.75, GBP/JPY prices are likely to remain firmer. Also favoring the pair buyers is the recently upbeat Momentum line.

That said, the previous support line from January 24, close to 157.05, holds the key to the pair’s further upside towards the monthly high near 158.05.

Meanwhile, a downside break of the 100-SMA level near 155.75 will be crucial for GBP/JPY bears as it will direct them to the recent swing low around 155.30.

Following that, the 155.00 threshold and the monthly low of 154.50 should lure the pair sellers.

Overall, GBP/JPY remains in an upward trajectory towards refreshing the monthly top.

GBP/JPY: Four-hour chart

Trend: Further upside expected

China has “fallen far short of implementing its commitments to purchase US goods and services in 2020 and 2021,” the Wall Street Journal (WSJ) reports, citing a report from an Office of the US Trade Representative to Congress.

“To the extent that China’s unfair, nonmarket and distortive policies and practices persist, the United States is prepared to use domestic trade tools strategically as needed in order to achieve a more level playing field with China for US workers and businesses,” the report said.

Market reaction

The market mood remains cautious amid looming Russia-Ukraine concerns, although AUD/USD remains underpinned by a strong Australian jobs report.

The above headlines fail to deter the aussie bulls, as the spot currently trades at 0.7204, up 0.21% on the day.

• US Treasury yields, stock futures portray market’s fragile risk profile on doubts over Russia’s military moves.
• Fed’s silence on 0.50% rate-hike for March also weigh on sentiment.
• Second-tier US data, updates from G20 gathering and Fedspeak will offer additional directions.

Market sentiment turned sour during early Thursday as traders recheck previous risk-positive catalysts concerning Russia, as well as react to the latest Federal Open Market Committee (FOMC) Minutes.

While portraying the mood, the US 10-year Treasury yields dropped 1.5 basis points (bps) to 2.03% whereas S&P 500 Futures decline 0.15% at the latest. It’s worth noting that the US Dollar Index (DXY) pauses the earlier two-day downtrend around weekly low whereas gold witnesses a pullback due to the downbeat risk profile.

Doubts over the Russian confirmation of calling back the troops from the border join the Fed policymakers’ resistance to back the 0.50% rate hike in the March meeting to weigh on the risk appetite of late.

Earlier, a Senior Western Intelligence official joins Ukrainian President Volodymyr Zelenskyy to challenge arguments that Moscow military retreats from the border. Recently, an update from an Estonian diplomat suggests that Russia moves more military battalions towards the area near Ukraine and has also built a road and working on a bridge to soften the transport.

On other hand, the FOMC Minutes showed hawkish concerns among the board members even if marking no strong support for a 0.50% rate hike in March. “Federal Reserve officials agreed last month that it was time to tighten monetary policy, but also that decisions would depend on a meeting-by-meeting analysis of data, according to minutes of the most recent policy meeting,” reported Reuters.

It’s worth noting that US Retail Sales and Industrial Production rose notably beyond the market forecasts and previous readouts with the latest MoM figures of 3.8% and 1.4% respectively in January. The same raises prospects of the Fed’s rate-hike and also highlights the latest disappointment over the policymakers’ refrain to act.

Elsewhere, news that US President Joe Biden’s administration is up for actions against China, to address the shortfall in phase 1 deal commitments, also challenges the market sentiment.

Looking forward, the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, will decorate the calendar. However, major attention will be given to Fedspeak and updates from G20, not to forget Russia-Ukraine news, for clear direction.

Read: Forex Today: Unimpressive Fed, escalating geopolitical tensions

• GBP/USD bulls moved in on FOMC minutes, extending earlier gains on BoE sentiment. 
• Russian headlines continue to keep traders on edge of their seats. 

GBP/USD is holding in near 1.3580 and in a tight Asian range of 20 pips as traders sit on their hands weighing the Federal Open Market Committee minutes vs Russian headlines. The US dollar was pressured overnight on the minutes despite concerns over an imminent threat of a Russian invasion of Ukraine.  

The convergence of central banks was a theme in New York when the minutes did not underpin the market sentiment of a 50bps rate hike as soon as March. With that being said, the minutes were written of a meeting that took place between Fed board members before the hot US inflation report and stellar jobs prints.

Nevertheless, the pound was already higher across the board on Wednesday after domestic data showed inflation in Britain at a nearly 30-year high. The Bank of England is expected to hike interest rates again. The BoE has hiked twice since December. Rates have risen to 0.5% from 0.1%. Another hike to 0.75% or 1% on March 17 after the BoE's next meeting is expected.

The data showed that the Consumer Price Index on an annual basis climbed to 5.5% in January. This was the highest since March 1992, and above expectations from economists for it to hold at December's 5.4%.

As for the Russian headlines, alarmingly, the US State Department said that more Russian forces, not fewer, are on the Ukraine border and they're moving concerningly into fighting positions. 

GBP/USD technical analysis

Meanwhile, the daily outlook sees the price stuck between a wide 1.3520 and 1.3650 range:

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3321 vs. the estimate at 6.3371 and the last close of 6.3366. 

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.

• Silver struggles to carry the previous day’s gains inside a bullish chart pattern.
• Receding bearish bias of MACD, key SMAs keep buyers hopeful.
• Monthly resistance line adds to the upside filters.

Silver (XAG/USD) refreshes intraday low to $23.54, down 0.40% on a day during Thursday’s Asian session.

In doing so, the bright metal stays inside a two-week-old ascending trend channel formation despite failing to extend the previous day’s gains.

The recent pullback eyes the stated channel’s support line near $23.40 but the MACD conditions and important SMA levels challenge the XAG/USD bears afterward.

That said, the 200-SMA level of $23.10 precedes the 100-SMA surrounding $23.00 to test the metal’s downside past $23.40.

In a case where the silver sellers dominate past $23.00, the monthly low of $22.00 should return to the chart.

On the contrary, a downward sloping trend line from January 20, close to $23.85, guards the quote’s immediate upside ahead of directing the silver buyers towards the stated channel’s resistance line, near $24.30 by the press time.

Silver: Four-hour chart

Trend: Further upside expected

• AUD/USD prints three-day uptrend while poking weekly high on mixed Aussie jobs data.
• Australia Employment Change rose past forecasts, Unemployment Rate met expectations in January.
• Risk appetite remains fragile over Russia, Fed concerns, yields, equities drop of late.
• Second-tier US data will decorate calendar but qualitative catalysts are the key to watch for clear direction.

AUD/USD pauses three-day uptrend around 0.7200 following the mixed Australia jobs report during the early Asian session on Thursday.

The Aussie pair initially cheered softer US dollar and optimism surrounding the UK-Australia trade ties to print gains. However, the market’s anxiety joined mixed data to probe the bulls of late.

That said, Australia’s Employment Change rose past 0.0K forecast to 12.9K, below 64.8K prior, whereas the Unemployment Rate remained unchanged to 4.2%, meeting market consensus, in January. Further, the Participation Rate rose past 66.0% expected and 66.1% previous readouts to 66.2% during the stated month.

It’s worth noting that UK PM Boris Johnson praised strong ties between Britain and Australia, also lauded concerns of a better future, following a video call with Australian Prime Minister Scott Morrison.

Elsewhere, indecision over Russia-Ukraine tensions and Fed’s next move weigh on the risk barometers like US Treasury yields and equities. That said, the US 10-year Treasury yields dropped 2.3 basis points (bps) to 2.024% whereas S&P 500 Futures decline 0.25% at the latest.

Having witnessed no reaction to the positive surprise of Aussie Employment Change, AUD/USD traders will pay attention to the risk catalysts for fresh impulse, which in turn challenge the pair’s latest run-up. Also important will be the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey.

Technical analysis

Unless declining back below the 50-DMA level near 0.7170, AUD/USD remains on the way to the 0.7235-45 key resistance area comprising the 100-DMA and a descending trend line from early November. The bullish bias also gains support from firmer RSI and MACD signals.

Australia January jobs report has been released whereby the Unemployment Rate release by the Australian Bureau of Statistics, was unchanged but other key details of the data were bullish for AUD. 

The Employment Change beat expectations at +12.9K (vs the expected 0K) and the Unemployment Rate arrived at 4.2% (vs. the expected and prior 4.2%).

However, the Participation Rate for Jan was a touch higher also at 66.2% (est 66.1%; prev 66.1%).

AUD/USD update

AUD/USD is so far unreactive to the data in any great shape, moving between 6 pips of volatility around 0.7206.

There is a little surprise element in the data to lift AUD or shed new light on the outlook for interest rates, especially considering the ongoing support from the NSW and Victoria post-Delta reopening against the Omicron outbreak over the summer holidays.

Given that the Aussie is already at critical resistance and how markets are already pricing in rate hike prospects from the Reserve Bank of Australia, the focus from a technical standpoint is weighted to the downside. However, the data should prevent a hard landing of any sort and should be bullish for AUD.

AUD/USD weekly chart

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labour force. If the rate hikes indicate a lack of expansion within the Australian labour market. As a result, a rise leads to weakening the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).

• The EUR/USD bears are lurking at daily resistance.
• EUR/USD H1 price chart exhaustion starting to play out. 

The New York session's analysis, EUR/USD Price Analysis: Bulls seek out territory through 1.14 the figure, eye 61.8% golden ratio, called out the possibility fo a test through 1.14 the figure but highlighted the downside risks and highlighted the significance of any signs of exhaustion in the current correction.

The price is attempting to rise in Tokyo but currently lacks conviction in a sleepy Asian session so far. The bigger test for the bulls will be in the European session where most volume and related headlines pertaining to the Russian risk will drive price action. 

Meanwhile, those on the lookout for signs of exhaustion in the price action will note the double top formed on the hourly chart:

EUR/USD daily chart

The price is testing daily resistance and if this holds, the focus will be on the downside. 

• USD/JPY extends the previous day’s losses, remains depressed around intraday low.
• Anxiety over Russia-Ukraine issue, Fed’s next move weighs on risk appetite.
• Yields drop after a lackluster performance, stock futures and Nikki 225 also decline.
• Japan’s trade deficit rose to largest since January 2014, second-tier US will decorate calendar.

USD/JPY takes offers to refresh intraday low near 115.30 amid fragile risk profile as Tokyo opens for Thursday.

The yen pair dropped the previous day as the market’s indecision over the US Federal Reserve’s (Fed) next move, as well as lack of clarity on the de-escalation of the Russia-Ukraine tensions. It’s worth noting that the latest Japan trade numbers failed to weigh on the JPY due to its safe-haven appeal.

That said, Japan’s Merchandise Trade Balance Total dropped to the eight-year low in January 2022 to ¥-2191.1B versus ¥-1607B expected and ¥-583.3B prior. Also important to note was the fact highlighted by Reuters that Japan January shipments to China post y/y drop for the first time in 19 months.

It’s worth noting that yields on 20-year Japanese Govt Bond (JGB) rose to a new high since February 2017, at 0.72% by the press time, whereas the US 10-year Treasury yields also dropped 2.3 basis points (bps) to 2.024% at the latest. Also portraying the risk-off mood are the downbeat prints of Japan’s Nikkei 225 index and S&P 500 Futures, down 0.45% and 0.25% at the latest.

The main catalyst behind the moves are headlines from Russia as recently softer comments from Moscow fail to convince the West and some of the Ukrainian sources as they reject the Russian troops’ retreat. On the other hand, the latest update suggests that Russia moves more military battalions towards the area near Ukraine and has also built a road and working on a bridge to soften the transport.

On the other hand, the Federal Open Market Committee (FOMC) Minutes also showed the hawkish concerns among the board members even if marking no strong support for a 0.50% rate hike in March.

That said, US Retail Sales and Industrial Production rose notably beyond the market forecasts and previous readouts with the latest MoM figures of 3.8% and 1.4% respectively in January.

Looking forward, risk catalysts are the key to keeping USD/JPY bears hopeful while the second-tier US economics, mainly the housing market numbers, jobless claims and Philadelphia Fed Manufacturing Survey, may entertain traders.

Technical analysis

Unless breaking a three-week-old ascending support line, currently around 115.20, USD/JPY bears remain challenged. On the contrary, the double tops surrounding 116.30-35 become the key hurdle for the yen pair buyers to watch during the recovery moves.

January month employment statistics from the Australian Bureau of Statistics, up for publishing at 00:30 GMT on Thursday, will be the immediate catalyst for the AUD/USD pair traders.

The jobs figures become more important considering the Omicron impact to be seen in January. Also a major concern is the Reserve Bank of Australia’s (RBA) hesitance to respect the rate-hike concerns while citing the virus-led economic setback, which is likely to delay the recovery to H2 2022 per the latest RBA Minutes.

Market consensus favors Employment Change to ease to 0K from +64.8K previous on a seasonally adjusted basis whereas the Unemployment Rate is likely to remain unchanged at 4.2%. Further, the Participation Rate may also ease from 66.1% to 66.0%.

Ahead of the event, analysts at Westpac said,

How could the data affect AUD/USD?

AUD/USD bulls take a breather around a one-week high near 0.7200, after rising for the last two consecutive days, during Thursday morning in Asia. In doing so, the risk barometer portrays the market’s indecision over the Russia-Ukraine crisis and the Fed moves amid the pre-data caution.

As markets have already priced their bets on softer data, amid virus woes, backed by the RBA’s recently downbeat comments, any positive surprise will help AUD/USD to extend recent recovery moves. However, no major up-down is expected until the readings print extreme figures.

Technically, a daily closing beyond the 50-DMA, near 0.7170 by the press time, joins firmer RSI and MACD signals to direct AUD/USD buyers towards the 0.7235-45 key resistance area comprising the 100-DMA and a descending trend line from early November.

Key Notes

AUD/USD bulls pause around 0.7200 with eyes on Australia employment data

AUD/USD Forecast: Bulls lead ahead of Australian employment data

About the Employment Change

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).

About the Unemployment Rate

The Unemployment Rate released by the Australian Bureau of Statistics is the number of unemployed workers divided by the total civilian labor force. If the rate hikes, indicates a lack of expansion within the Australian labor market. As a result, a rise leads to weaken the Australian economy. A decrease of the figure is seen as positive (or bullish) for the AUD, while an increase is seen as negative (or bearish).