CFD Markets News and Forecasts — 22-02-2022

• EUR/USD struggles to extend recovery moves from eight-day low.
• Bearish MACD signals keep sellers hopeful inside three-week-old triangle.
• 100-DMA, horizontal area from November add to the upside filters.
• Sellers need validation from triangle’s support to aim for three-month-long horizontal support.

EUR/USD retreats towards 1.1300 during early Wednesday’s Asian session, fading the previous day’s corrective pullback from a weekly low.

The major currency pair bounce off the short-term triangle’s support the previous day to snap a three-day downtrend. However, a rebound failed to cross a convergence of the 21-DMA and 50-DMA, around 1.1330-35.

In addition to the failures to break the key moving average confluence, bearish MACD signals also keep sellers hopeful.

Though, a clear downside break of the stated triangle’s lower line, around 1.1290 by the press time, becomes necessary for the EUR/USD seller’s entry.

Following that, a downward trajectory towards a horizontal area from November, near 1.1235-30, will gain the bear’s attention.

Alternatively, recovery moves beyond 1.1335 needs to cross the triangle’s resistance line, at 1.1360 to convince buyers.

Even so, the 100-DMA and a three-month-old horizontal resistance zone, around 1.1390 and 1.1480-85 in that order, become tough nuts to crack for the EUR/USD buyers before retaking the controls.

EUR/USD: Daily chart

Trend: Further weakness expected

• On Tuesday, the USD/JPY reclaims the 115.00 mark amid a risk-off market mood in the FX market.
• USD/JPY Technical Outlook: Neutral upward biased, as long as it remains above 115.06.

As the Asian Pacific sesión begins, following a choppy trading North American session, the USD/JPY barely gains some 0.05%, trading at 115.06 at press time. Market conditions remain downbeat in the equity markets. In the FX space, risk-sensitive currencies, like the NZD, the AUD, and the GBP, were the gainers. Contrarily, the Japanese yen finished on the wrong foot but trimmed some of its earlier losses near Wall Street’s close.

The US 10-year Treasury yield rise one and a half basis points sits at 1.944%, a tailwind for the pair due to its positive correlation with the USD/JPY.

On Tuesday in the Asian session, the USD/JPY remained confined to the 114.50-80 region before breaking the range, rallying above the 115.00 mark.

USD/JPY Price Forecast: Technical outlook

The USD/JPY reclaimed the 50-day moving average at 114.84, exacerbating the upward move above 115.00. The USD/JPY remains neutral-upward biased in the near term but faces resistance on the January 18 daily high at 115.06. It is worth noting that the Relative Strength Index (RSI) at 50 is almost flat, suggesting the USD/JPY might consolidate before resuming the uptrend.

USD/JPY’s first support level would be the abovementioned 50-DMA at 115.06. Breach of the latter would expose last year’s November 24 daily high at 115.52, followed by the 116.00 mark and the January 4 cycle high at 116.35.

• AUD/JPY has sensed selling pressure near 83.18 as sanctions on Russia may escalate further.
• Blinken-Lavrov meeting has been abandoned as Moscow’s arbitrariness.
• The risk-off impulse seems set to kick in again.

The AUD/JPY pair has witnessed some significant offers near Tuesday’s high of 83.18 as the uncertainty has shot up and the risk-off mood may underpin the safe-haven appeal. US Secretary of State Antony Blinken has abandoned the meeting with Russian Foreign Minister Sergey Lavrov as the former claims that Moscow has not stopped an invasion of Ukraine despite various sanctions threats and peace-making suggestions. Therefore, meeting with a Russian diplomat makes no sense anymore.

Moreover, the US will continue to impose sanctions on Russia alongside the aggression of Moscow on Ukraine.

Earlier, the Kremlin recognizes two regions of Ukraine: Donetsk and Luhansk as ‘independent’ and build troops over there to invade Ukraine. Separatist leaders adjoin Russia and have provided clean chit to establish military bases, which has spooked the market.

AUD/JPY, as a risk barometer, has performed strongly after hitting the lows of 82.14 on Tuesday but is likely to surrender gains amid the escalating geopolitical tensions further.

On Tuesday, Australia pulls its diplomats out of Ukraine on rising expectations of imminent strikes between Russia and Ukraine. Adding to that, the Australian administration has urged Australians to leave Ukraine.

Apart from the headlines of the Russia-Ukraine tussle and flood of sanctions on Moscow, the investors will focus on the quarterly and yearly Wage Price Index (WPI) from the Australian Bureau of Statistics on Wednesday. While the Tokyo Consumer Price Index (CPI) data from the Statistics Bureau of Japan on Thursday will be keenly watched.

In addition to the latest blow to the hopes of the Blinken-Lavrov meeting, rejections of the Biden-Putin summit also posed challenges to the market sentiment during early Wednesday morning in Asia.

Before a few minutes, US Secretary of State Antony Blinken rejected the need for Thursday’s meeting with Russian Foreign Minister Sergei Lavrov while citing the start of Moscow’s invasion of Ukraine.

Read: US Secretary Blinken: It doesn't make sense for me to meet with Russia's Lavrov anymore

Following that, the White House ruled out the scope of a summit between US President Joe Biden and his Russian counterpart Vladimir Putin, which triggered optimism earlier in the week.

Elsewhere, an anonymous US Diplomat was recently quoted saying, “US officials did not discuss increasing oil production during US trip to Saudi Arabia last week.”

The official also added, “OPEC countries understand our concerns about the importance of the stability of global oil markets.”

Market reactions

The risk-off mood gains pace with each negative headline concerning the Russia-Ukraine tensions, which in turn helps prices of oil and gold.

Read: WTI defends $91.00 on fears of Russian invasion, API data eyed

• WTI pauses pullback from fresh eight-year high, sidelined after snapping three-day winning streak.
• US Secretary of State Blinken rules out need for meeting Russian Foreign Minister Lavrov, lourd blast heard in Donetsk.
• West started rolling out sanctions, Canada was the latest one.
• Weekly oil inventory data from API, risk catalysts can keep bulls hopeful.

WTI crude oil prices remain steady at around $91.40, following a pullback from the fresh multi-month high. In doing so, the energy benchmark pushes back the sellers after the quote printed the first negative daily closing in four by the end of Tuesday’s settlement.

Although US President Biden’s speech may have helped markets to take a sigh of relief, Western sanctions on Russia and escalating fears of Moscow’s imminent invasion of Kyiv keep oil buyers hopeful. It is worth noting that the firmer yields seemed to have triggered the latest profit-booking of WTI but the geopolitical woes keep it firmer ahead of the weekly industry stockpile data from the American Petroleum Institute (API).

US President Biden’s comments like, “We have no intention of fighting Russia,” seem to have played the role of turning now the fears of a full-fledged war between the West and Moscow. However, Russian President Vladimir Putin’s request for troops to the decision body at home, as well as US Secretary of State Antony Blinken’s rejection of the need for Thursday’s meeting with Russian Foreign Minister Sergei Lavrov, blow the cautious optimism.

Elsewhere, Canada followed the path of the UK, the US and the European Union while announcing the latest sanctions over Russia, which in turn keep the geopolitical fears on the table and favor oil buyers.

Also underpinning the WTI oil prices is the inability on the part of the OPEC+ to match supply increase commitments. The energy cartel raised output by 400,000 barrels per day (bpd) recently but hasn’t had success in delivering the production hike due to outages in multiple units and geopolitical fears.

It’s worth observing that the upbeat prints of the US PMIs for February join softer USD to also favor WTI buyers.

Moving on, developments surrounding Russia and Ukraine will be crucial for oil traders to watch as the bulls are likely to keep reins. Also important will be the API Weekly Crude Oil Stock for the week ended on February 18, prior -1.076M.

read: Crude oil prices eye $100 ahead of Russia sanctions

Technical analysis

Unless providing a daily closing below 21-DMA level of 89.47, WTI crude oil prices are likely to remain on the bull’s radar.

• The USD/CHF trims Monday’s losses, so far 0.01% up in the week.
• US President Joe Biden condemned Russia’s actions and imposed sanctions.
• USD/CHF Technical Outlook: A tweezers-bottom could exacerbate a move towards 0.9250.

The USD/CHF is recovering as the Wall Street session winds down following US President Joe Biden's speech in which he addressed the conflict in Ukraine and imposed some sanctions on Russia and the two separatist states. At press time, the USD/CHF is trading at 0.9215.

US President Joe Biden condemned Russia’s actions and imposed sanctions

Two hours before Wall Street closed, US President Biden hit the stage. He condemned Russian President Putin’s latest actions and announced new sanctions to Russian peers in his speech. He said that Russia made a “flagrant violation of international law and demands a firm response.” Biden added that Russia added blood supplies to the border and noted that “you don’t need blood unless you’re preparing a war.

US Sanctions

• Halted the Nord stream 2 in conjunction with Germany.
• Sanctions to Russia’s “Military bank” and VEB Bank.

Market’s reaction

The abovementioned sanctions improved the market sentiment for a while, but in the end, US equity indices edged lower, finishing Tuesday’s session in the red.

USD/CHF Price Forecast: Technical outlook

Putting aside geopolitical news, the USD/CHF remained subdued on Tuesday during the Asian session. However, as European traders got to their desks, the USD/CHF jumped on a mean reversion move, paring Monday’s losses.

USD/CHF Tuesday’s price action formed a “tweezers-bottom” candle pattern that denotes an upward bias. Furthermore, the USD/CHF daily moving averages (DMAs) are below the spot price, another signal of buying pressure on the pair. Nevertheless, to further cement that bias, USD/CHF bulls would need a daily close above February 21 close at 0.9158.

In that outcome, USD/CHF’s first resistance would be February 10 daily high at 0.9296. Once that supply zone is cleared, the next ceiling would be January 31 daily high at 0.9343, followed by last year’s November 24 daily high at 0.9373.

• AUD/USD is facing barricades near 0.7233 after the Western leaders impose sanctions on Russia.
• The risk-off impulse in the market has underpinned the greenback against the Aussie.
• The sanctions on Russian sovereign debt would block its administration to access Western financing.

The AUD/USD was facing barricades near 0.7233 on Tuesday as the Wester leaders imposed sanctions on Russia. The Kremlin has violated international law by sending troops to eastern Ukraine. Moscow has been supported by the separatist leaders from Donetsk and Luhansk, which have been labelled as ‘independent’ by the Russian leader Vladimir Putin.

Despite the various peace-making suggestions and threats of imposing sanctions by the World leaders, Russia continues to build troops near eastern Ukraine. Many major economies have loaded up sanctions on Moscow.

On Tuesday, Britain hit Russian banks with sanctions while Germany barricades a new gas pipeline from Russia despite the fact that Germany banks upon Russia for its domestic gas usage.

US President Joe Biden has put some serious sanctions on Moscow. "We're implementing full blocking sanctions to large Russian financial institutions, VEB, and their military bank," President Joe Biden said. The move might block the Russian administration from Western financing.

The sanctions imposed on Russia have spurt the volatility in an already highly uncertain market. The antipodean is underperforming against the greenback and is likely to continue underperformance as the safe-haven appeal is getting more traction.

The US dollar index (DXY) has rebounded from Wednesday’s low at 95.97 and has surpassed 96.00 in the early Asian session.

Meanwhile, the quarterly and yearly Wage Price Index (WPI) from the Australian Bureau of Statistics is due on Wednesday. While, the US PMI monthly Composite Reports on Manufacturing and Services has landed at 56, higher than the previous figure of 51.1 on Tuesday.

US Secretary Blinken says now that Russia's invasion is beginning, it doesn't make sense for me to meet with Russia's Lavrov anymore. He says he sent a letter today to him informing him of that.

More to come...

Market implications

This is a potential catalyst for a risk-off session in Asia.

More to come...

• NZD/USD bears have moved out of the way and the bulls are in charge in early Asia.
• All eyes will turn to the RBNZ as the Russian risk abates as a chorus of Western measured sanctions ease, markets. 

NZD/USD is currently trading at 0.6734 and is coming to a close in the North American session, up by over 0.5%. Commodity-FX is getting a lift from inflation expectations and the kiwi is poised for further gains on expectations of a hawkish outcome from the Reserve Bank of New Zealand today.

The Russian factor is not impacting risk as hard as it has done as traders begin to look through the headlines that have so far not delivered anything that indicates Russian troops are infiltrating the borders of Ukraine. So far Russia’s presence in Ukraine is limited to the two separatist areas which Putin recently formally recognised.

Additionally, the measured sanction response from the West has steadied the markets. In the North American session, US president Biden announced the first tranche of sanctions on Russia by implementing sanctions on Russian sovereign debt and by imposing sanctions on Russian elites and family members. Biden also announced that the US will be working with Germany to halt the Nord stream 2 while also issuing full blocking sanctions on two Russian banks.

As for the RBNZ, ''market expectations continue to favour a 25bp (rather than 50bp) RBNZ OCR hike today; if delivered, that should provide a fairly solid base for the NZD on the view that measured hikes will be more digestible for the economy and are less likely to deliver a hard landing,'' analysts at ANZ bank said in a note today. 

''NZ’s long term interest rates are already best in class – so the interest rate differential box has already been ticked and that won’t change much with a lesser hike. But with markets split on the OCR decision, expect more volatility, especially with Russia/Ukraine tensions still apparently escalating.''

Dr. Raphael W. Bostic who is the chief executive officer of the Federal Reserve Bank of Atlanta is currently speaking and has said that the US economy is "still quite strong" as officials try to figure out the economy "in real time".

Bostic said companies and output remain constrained by the inability to find workers but when it comes to demand and spending, "people are ready to go".

Key comments

No clear evidence demand will fall off in the coming months; growth is expected to continue.

Modal outlook is not for the recession, but "eventually there will be some slowdown" in growth.

Not sure yet how sanctions on Russia will impact economy.

Uncertainty could lead to some retrenchment of investment.

More to come...

• USD equities have recovered from intra-day session lows after Biden’s Russia sanction announcement in something of a relief rally.
• Ukraine President Zelensky issued a decree to recruit reservists.
• The S&P 500 chopped around the 4300 level, ending the day down more than 1.0%.  

US equities recovered from intra-day lows on Tuesday in wake of US President Joe Biden’s announcement of new sanctions targeting Russian banks, sovereign debt and wealthy individuals, joining the UK and EU who had already announced similar measures. In the aftermath of Biden’s remarks, where he urged that the door for diplomacy remains open, US equities staged a rebound, perhaps on hope that a diplomatic resolution could yet avoid further escalation and sanctions. But the news that the Ukrainian President had issued a decree to recruit more reservists led to fresh choppiness just prior to the close.

Some analysts warned not to read too much into the price action with US equities trading at monthly lows, saying the rebound could have been nothing more than a “buy the fact” reaction after the sanctions unveiled by Biden were largely in line with expectations. Others said the recovery might have been driven by dip-buying, with some traders cautioning that US equity markets have been overly sensitive to developments in Eastern Europe and should instead focus more on domestic fundamentals.

Either way, the S&P 500 index chopped either side of the 4300 level on Tuesday, ending the session more than 1.0% lower. Bears continue to eye a potential test of the January lows in the low 4200s and a close at current levels would confirm that the index has fallen back into “correction” territory (i.e. more than 10% below recent record highs).

Meanwhile, the Nasdaq 100 index also recovered from intra-day lows, but was unable to regain the 14K level and also dropped more than 1.0%, while the Dow tanked roughly 1.5% to test 33.5K and eye a test of January lows in 33.1K area. The S&P 500 CBOE Volatility Index or VIX remained under 30.00 after testing February highs at 32.00 earlier in the session.

• EUR/USD rallies as risk lifts heading into the close on Wall Street with stocks turning less negative.
• US president Joe Biden's speech and announcements of sanctions are not enough to tip risk over the edge of the abyss.
• Bull flag pattern on the hourly chart is starting to shape up for a breakout to the upside. Eyes on 1.1350's.

EUR/USD was recovering following US president Joe Biden's speech where despite his warnings that Russia is setting up to invade deeper into Ukraine, this is still speculation. The sanctions imposed on Russia are not seen to be disruptive to the global economy and for that reason, risk has rallied in financial markets. So far, there has been no further escalation of the crisis and no evidence that Russia is encroaching on Ukraine outside of the current borders. EUR/USD has subsequently corrected back towards 1.1340 and stays on the green by some 0.30% towards the closing hour on Wall Street. 

US Biden announced sanctions

US president Biden announced the first tranche of sanctions on Russia by implementing sanctions on Russian sovereign debt. The US will be working with Germany to halt the Nord stream 2 while also issuing full blocking sanctions on two Russian banks. Additionally, the US will be imposing sanctions on Russian elites and family members.

This is another whipsaw for traders in forex due to the developments in Ukraine a day after Russian President Vladimir Putin recognized two breakaway regions in the country and ordered troops to the area. Putin said the troops would be "peacekeeping" in the breakaway regions - a claim dismissed by the United States as "nonsense".

However, so long as Russia does not invade deeper, there could still be room for diplomacy and the markets are of the mind that there can be a resolve to this crisis. Biden also said he was hopeful diplomacy is still available. The Dow and Nasdaq were down more the 2% shortly before the comments from Biden but have since recovered some ground lost on the day. Currently, the Dow Jones is now down by just 0.9% and the S&P 500 0.4%.

As far as diplomacy, the White House said on Sunday a summit between the US and Russia will go ahead only "if an invasion hasn't happened." This means that the meeting between Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov in Europe this week will be a critical stepping stone in this direction.

However, this meeting will also depend on the condition that Moscow's troops don't further encroach into Ukraine between now and then. Earlier on Tuesday, NATO Secretary-General Jens Stoltenberg said that the alliance believed Russia was still planning a big assault on Ukraine following Moscow's recognition of two separatist regions in the former Soviet republic's east.

The Guardian reported earlier, ''Putin confirmed that Russia had recognised the expanded borders of the two Russian-controlled territories in east Ukraine in remarks to the press.

'We recognised the states,' he said.

His dry explanation has explosive consequences: Russia could use the territorial claims as a cause to launch an invasion of more Ukrainian territory, saying it was defending the interests of its proxy states in Donetsk and Luhansk.

Putin stopped short of saying that he was about to launch a further invasion.

But Kyiv has always resisted negotiating directly with the governments of the Russian-controlled territories, saying it wants to speak with Moscow directly.

Having recognised the territories and received authorisation to use military force abroad on Tuesday evening, it has become clear that Russia is building the framework for what could be a broader conflict in Ukraine.''

EUR/USD technical analysis

The bull flag pattern on the hourly chart is starting to shape up for a breakout to the upside. On the 15-min chart below, the bulls could be looking to engage at this juncture in the 1.1330s with eyes on the 1.1350s for the sessions ahead:

EUR/USD M15 chart

• USD/CAD has pulled back to the 1.2750 area having earlier tested key resistance in the upper 1.2700s.
• Focus remains very much on geopolitics, with US President Biden just announcing new sanctions on Russia.

In choppy trading conditions as FX market participants observe developments in the rapidly escalating Russia/Ukraine crisis saw USD/CAD rally to test a key level of resistance in the upper 1.2700s on Tuesday. The pair has since pulled back from session highs in the 1.2780s to near the 1.2750 mark, where it now trades flat on the day and close to the centre of the day’s 1.2720-1.2780ish range. US President Joe Biden just delivered a speech where he, as expected, unveiled new US sanctions against Russian banks, sovereign debt and wealthy individuals, joining the likes of the UK and EU who had already announced similar measures.

Focus now shifts back to the ceasefire line between Ukraine and the separatist-held provinces in its east, where fighting has picked up in recent days, as well as Russia-backed attempts to stage so-called “false-flag” events. Russia’s parliament on Tuesday gave President Vladimir Putin permission to authorise the creation of Russian military bases in the separatist regions of eastern Ukraine, and as Russian forces continue to amass on Ukraine’s borders, investors fear a full-scale invasion looms.

This suggests more choppiness ahead of the likes of USD/CAD and technicians will be eyeing a potential break above resistance near-1.2800, which could open the door to a push towards December highs above 1.2950. One thing to bear in mind for USD/CAD though is that a full-scale Russian invasion of Ukraine would likely see oil prices shoot through the roof on fears of global supply disruption, which could weigh on the pair. For the time being then, USD/CAD will likely continue to swing between recent 1.2650-1.2800 levels until the geopolitical picture becomes clearer.

What you need to take care of on Wednesday, February 23:

Short-lived optimism ruled financial markets during London trading hours, as Ukrainian President Volodymyr Zelenskyy said that he believes there would not be war nor a wider escalation. However, European and American authorities have anticipated sanctions on Russia. The positive sentiment did not last long, and risk aversion dominated the US session.

The UK was the first to take action, announcing the country would sanction five Russian banks and three individuals, adding that this is just the first tranche of what the government is prepared to do. Also, Ursula  von der Leyen, President of the European Commission, tweeted that “the Union remains united in its support for Ukraine's sovereignty and territorial integrity” and that “a first package of sanctions will be formally tabled today.”

US President Joe Biden gave a press conference on the matter. Among other things, he said: “We have no intention of fighting Russia,” adding that US forces in Europe will help Baltic allies, but "these are totally defensive moves on our part." He says the U.S. and allies "will defend every inch of NATO territory and abide by the commitments we made to NATO."

Soft words from Biden helped Wall Street to trim part of its intraday gains, pushing the greenback lower at the end of the day.

The EUR/USD pair remained lifeless around 1.1350, while the GBP/USD pair saw a little more action but ended the day around 1.3560. The USD/CAD retreated sharply ahead of the close and settled around 1.2740, while AUD/USD advanced for a second consecutive day and settled around 07220.

Safe-havens CHF and JPY edged lower against their American rival, while Gold Prices consolidated gains, with spot now trading around $1,900 a troy ounce. Crude oil prices edged lower, with WTI settled at $91.60 a barrel.

 Markit flash PMIs for the EU, and the US were generally encouraging, indicating economic expansion in February as the world seems ready to put an end to the coronavirus pandemic.

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• The British pound advances some 1.02% during the week as Eastern Europe tensions escalate.
• US equities record losses in the day, while the so-called fear index, the VIX, reaches 30.43.
• GBO/JPY Technical Outlook: A bullish engulfing candle looms, which could pave the way for a move towards 157.00.

The British pound rises as the Ukraine – Russia conflict in Eastern Europe escalates. At the time of writing, the GBP/JPY is trading at 156.26.

The market sentiment remains fragile amid the escalation of the crisis. US equities remain in the red, while the CBOE Volatility Index (VIX), also known as the fear index, reaches the 30.43 mark.

During the overnight session for North American traders, the GBP/JPY edged lower towards 115.50 in the Asian session, consolidating in a range of 50-pips. Later, rallied towards the 156.50 area, retreating towards the 156.30s.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY is upward biased, as depicted by the daily moving averages (DMAs), which reside well below the spot price. Tuesday’s pullback witnessed some buying pressure lifting the pair around the February 14 daily low at 155.30, some 20-pips above the latter, accelerating a move towards 156.00. Furthermore, Tuesday’s price action is forming a “bullish-engulfing” candle pattern, which, once completed, would spur a rally towards 157.00.

In that outcome, the  GBP/JPY first resistance would be February 3 daily high at 156.50. Breach of the latter would expose January 18 daily low at 156.91, followed by February 18 daily high at 157.29.

US President Joe Biden, in a national address on Tuesday, called the latest steps by Russia to recognise the independence of breakaway regions in eastern Ukraine, as well as to move troops into the area, the beginning of a Russian invasion of Ukraine. Thus, Biden said that he will begin to impose sanctions on Russia that are far beyond earlier sanctions, given Russia's move was a flagrant violation of international law. 

The first tranche of sanctions starts now, Biden stated on Tuesday, saying that the US is issuing the full blockage of two Russian banks and is to impose sanctions on Russian elites and their family members. The US will also implement comprehensive sanctions on Russian sovereign debt. Russia will pay an even steeper price if it continues with the path of aggression. 

• Gold price trapped in a range as sellers emerge to sell the news on Russia.
• Fed is moving back into focus as the Russian risk premium starts to decay. 
• Traders watching for further deployment of Russian troops in expanded borders of Donetsk and Luhansk.

The price of gold, XAU/USD, has been stuck in a sideways range this week so far, bouncing around between $1,914 and $1,886 as traders juggle the chorus of headlines surrounding the Ukraine crisis. At $1,905 during the time of writing, gold is trading near flat on the day so far. 

Traders have been whipsawed in financial markets due to the developments in Ukraine a day after Russian President Vladimir Putin recognized two breakaway regions in the country and ordered troops to the area. Putin said the troops would be "peacekeeping" in the breakaway regions - a claim dismissed by the United States as "nonsense".

In the face of a slew of sanctions imposed by Western powers, such as the UK, US and EU, the Kremlin said it remained open to diplomacy but, so far, there has been no confirmation of any summit between Russia and the aforementioned nations. The White House said Sunday a summit between the US and Russia will go ahead only "if an invasion hasn't happened."

Blinken & Lavrov meeting is critical

Meanwhile, talks between Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov in Europe this week are the main focus. This meeting, however, also depends on the condition that Moscow's troops don't further encroach into Ukraine. However, this condition might have already been severed as there are concerns that Russia now recognises the expanded borders of Donetsk and Luhansk.

The Guardian has recently reported, ''Putin confirmed that Russia had recognised the expanded borders of the two Russian-controlled territories in east Ukraine in remarks to the press.

'We recognised the states,' he said.

His dry explanation has explosive consequences: Russia could use the territorial claims as a cause to launch an invasion of more Ukrainian territory, saying it was defending the interests of its proxy states in Donetsk and Luhansk.

Putin stopped short of saying that he was about to launch a further invasion.

But Kyiv has always resisted negotiating directly with the governments of the Russian-controlled territories, saying it wants to speak with Moscow directly.

Having recognised the territories and received authorisation to use military force abroad on Tuesday evening, it has become clear that Russia is building the framework for what could be a broader conflict in Ukraine.''

Meanwhile, the sanctions are flowing with Britain publishing a list thereof and Germany already freezing the Nord Stream 2 Baltic Sea gas pipeline project, which would have significantly increased the flow of Russian gas. This is fundamentally critical for the price of commodities and gold given the risks of even higher inflation for which gold is often considered to be a hedge.

''Russia is the third-largest oil producer (behind the United States and Saudi Arabia) accounting for 11% of world production, of which is consumers only about a third and exporting the rest,'' analysts at ANZ Bank said.

''Russia is also a major supplier of gas to Europe. Germany has advised that it will not grant regulatory approval for Nord Stream 2, the recently completed gas pipeline from Russia to Germany. This pushed up gas prices by 10%.''

Fed consideration

''Nearing a geopolitical climax, gold bugs are selling the news on Russia,'' analysts at TD Securities argued.

''Gold prices have struggled to firm north of $1900/oz despite the significant escalation in the Ukraine crisis. After all, gold prices have rallied significantly ahead of the escalation in response to the associated geopolitical risk premium, leaving traders to sell-the-news on the event.''

''A path towards de-escalation could also be a catalyst for a substantial repricing in gold, considering that expectations for a 50bp hike in March from the Fed have also eased as a result of the conflict. We still expect the crushing weight of a hawkish Fed to ultimately sap appetite for precious metals.,'' the analysts finalised.

Gold technical analysis

The analysts also explained that the rise in Russin risk premium catalyzed a breakout from gold's wedge pattern, bringing in some chartist demand and sparking a substantial CTA buying program.

''Without sustained buying behaviour, gold prices are unlikely to remain in an uptrend, particularly as real rates rise sharply amid dual tightening via hikes and quantitative tightening,'' the analysts argued.

''However, if gold prices are going to succumb to this macro regime as we expect, then CTAs are accumulating at the top.''

Directors at three of the Federal Reserves regional banks voted to increase the discount rate, or interest rate charged on commercial banks for emergency loans, ahead of the January FOMC meeting, minutes released on Tuesday showed. The rate hike recommendation came from the directors at the Federal Reserve banks of Cleveland, St Louis and Kansas City. At the January meeting, the Fed voted unanimously to keep interest rates on hold 0.0-0.25%. According to the minutes, the three regional Fed directors who supported an earlier rate hike did so given "elevated inflation or to help manage economic and financial stability risks". 

Market Reaction

Markets are much more focused on geopolitics with US President Joe Biden's announcement of sanctions against Russia due any moment now. 

• AUD/JPY swung between low-82.00 to low-83.00 ranges on Tuesday, buffeted by safe-haven flows and rising global commodity prices.
• Whilst the escalating Russia/Ukraine crisis will remain a key driver, Aussie traders will also watch upcoming WPI data on Wednesday.

AUD/JPY has been choppy on Tuesday, swinging between lows not far above 82.00 and session highs to the north of the 83.00 level. On the one hand, heightened geopolitical tensions as the Russia/Ukraine crisis continues to escalate has put pressure the pair as market participants seek haven assets such as the yen. On the other hand, geopolitical tensions are contributing to upwards pressure on global commodity prices, favouring the commodity export-dependent Aussie. At current levels in the 82.80s, the pair trades with on the day gains of just under 0.5%, as traders continue to monitor geopolitical developments ahead of the release of Q4 Australian Wage Price Index (WPI) figures during Wednesday’s Asia Pacific session.

The data, if hotter than expected, could encourage the RBA to pivot their policy guidance in a more hawkish direction at a faster pace. The RBA has only so far conceded that a first rate hike may come before the end of the year and emphasised that they are willing to be patient, implying any such hike would come towards the end of the year. Hot WPI figures might encourage that timeline to be brought forward, which could provide tailwinds for the Aussie. Otherwise, the data calendar is pretty sparse this week for AUD and JPY so geopolitics and risk appetite will remain in the driver’s seat.

• The EUR/JPY drops from daily highs amid a mixed market mood.
• EUR/JPY faces a wall of resistance around the 130.50-75 area that would be difficult to surpass.
• EUR/JPY Technical Outlook: Neutral-downward biased, as the daily chart shows.

Tuesday’s Price action witnessed a rally short-lived of the EUR/JPY above the 200-day moving average (DMA) at 130.76, followed by a retracement on the back of worsening market mood. At the time of writing, the EUR/JPY is trading at 130.26.

The market sentiment is mixed. Global equities take a hit, as European and US equity indices record losses, except for the FTSE100, IBEX, and Stoxx600. In the FX space, risk-sensitive currencies rise, while safe-haven peers are the laggards in the day.

During the overnight session, the EUR/JPY remained subdued but rallied on improving market mood, stalling around Pitchfork’s borrow trendline around the 130.70.85 region, near the US cash equities open. Following that, geopolitical headlines increased the appetite for the Japanese yen vs. the shared currency.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY is neutral-biased. The 200-DMA is still above the spot price, but the 50 and the 100-DMAs lie 10-pips below, confirming the abovementioned. However, the confluence of a four-month-old downslope trendline, Pitchfork’s bottom trendline, and the 200-DMA justify the neutral-downward bias, as EUR buyers face a wall of resistance levels ahead.

That said, the EUR/JPY first support level would be the confluence of the 50 and 100-DMAs around the 130.11-19 area. A clear break would expose 130.00, followed by a trip to the January 25 YTD low at 128.24.

• GBP/USD is facing resistance on the hourly chart near 1.36 the figure.
• The 38.2% and 50% ratios are in focus around the area between 1.3580 and 1.3570.
• BoE and Ukraine crisis have been the main fundamental drivers on Tuesday. 

GBP/USD is back to flat on the day having travelled between a low of 1.3538 and a high of 1.3604. The price is trying to break to the upside through trendline resistance but is meeting some meanwhile horizontal resistance, as illustrated below. Meanwhile, the mix of uncertainty surrounding the Ukraine crisis and a less hawkish outlook at the Bank of England are potential stumbling blocks for the bulls in the foreseeable future. 

At the start of the week, Russian President Vladimir Putin ordered troops into two breakaway regions of eastern Ukraine which have resulted in bouts of risk-off in financial markets, at times supporting the US dollar.  Putin said the troops would be "peacekeeping" in the breakaway regions - a claim dismissed by the United States as "nonsense".

Consequently, among other sanctions from other nations, including the US and EU, the British PM Boris Johnson has announced fresh sanctions on Russia on Tuesday. The BBC reported that ''five banks have had their assets frozen, along with three Russian billionaires, who will also be hit with the UK travel bans.'' The PM stressed these could be extended, but faced calls for tougher action now.

In other news, BoE's Deputy Governor, Dave Ramsden, today advocated for more monetary tightening, but he also sees a "modest" rate hike over the coming months. The BoE raised interest rates to 0.5% this month from 0.25%, with Ramsden part of a minority who then voted for a bigger increase to 0.75%. Shaun Osborne, the chief currency strategist at Scotiabank, said in a note today,  "Ramsden cautioned that current market pricing for rate hikes would leave inflation below target in two years — echoing the warning from the Bank at this month’s meeting that markets are too aggressively priced for policy tightening.''

Markets will also keep a close eye on a number of other BoE speakers including Governor Bailey (who testifies to the Parliament’s Treasury committee) and Chief Economist Pill.

''Markets have moved to price a real chance of a 50bps hike by the MPC at their March meeting,'' analysts at TD Securities explained. ''We believe the MPC is more likely to err on the side of sequential 25bps hikes rather than opt for a 50bps hike.''

GBP/USD technical analysis

The price had broken out of the downtrend's resistance line and is now facing resistance on the hourly chart near 1.36 the figure. The 38.2% and 50% ratios align with prior structures between 1.3580 and 1.3570 that would be expected to act as support should there be a correction in the coming sessions. 

• The Australian dollar remains in the front foot in the week, up some 0.68%.
• Despite a mixed market mood, the US Dollar Index fails to weigh on the AUD.
• AUD/USD Technical Outlook: Range-bound but close to an upward break if it remains above 0.7200.

The Australian dollar stays firm in the North American session as tensions in Ukraine increase. At the time of writing, the AUD/USD is trading at 0.7223. The market sentiment is downbeat in the equity space, while in the FX complex, risk-sensitive currencies remain in the front seat, to the detriment of safe-haven peers.

Meanwhile, the US Dollar Index visited the 96.00 mark during the session, falling to the 95.96 figure, down 0.12%, while the US 10-year Treasury yield edges up two basis points, up at 1.948%.

Tensions between Ukraine and Russia intensified as Russian President Putin asked the Upper House Parliament to deploy Russia’s armed forces abroad. At the same time, NATO’s Chief Stoltenberg said they would continue to provide Ukraine strong political support while saying that NATO has over 100 jets on high alert.

In the US, Secretary of State Blinken said that yesterday’s actions are the beginning of the latest Russian invasion of Ukraine. Blinken added that Russia poses a threat to the security of people everywhere in the world.

Back to the AUD/USD, the Australian economic docket featured the ANZ Consumer Confidence, which dropped 1.4%, despite easing restrictions in NSW. In the last week, inflationary expectations ticked a tenth up from 5% to 5.1%. Meanwhile, the US economic docket revealed the IHS Markit Manufacturing, Services, and Composite PMIs for February, all of them better than foreseen. Later, the Conference Board reported that Consumer Confidence for February beat expectations came at 110.8 vs. 110.0 estimations but trailed January 113.8 print.

AUD/USD Price Forecast: Technical outlook

The AUD/USD is neutral-biased as it stays confined between the 50 and 100-day moving averages (DMAs), with the latter above the former. However, it broke above a three-month-old downslope trendline in the near term, opening the door for further upside, but would need a daily close above it.

If the abovementioned plays out, the AUD/USD first resistance would be the 100-DMA at 0.7240. Breach of the latter would expose December’s 30 daily high at 0.7275, followed by the 0.7300 mark.

• WTI has pulled back sharply to the $93.00 area after hitting fresh seven-year highs at $96.00 earlier in the session.
• Oil markets await US/EU sanction announcements on Russia after it recognised the independence of breakaway regions in East Ukraine.
• As the risk of a full-scale Russia/Ukraine war rises, commodity strategists continue to call for WTI to hit $100/barrel.

Oil prices have seen considerable chop on Tuesday, with front-month WTI futures at one point hitting fresh seven-year highs at the $96.00 level, before pulling back sharply to underneath $93.00. Choppy trade conditions are being driven by the unusually high level of uncertainty pertaining to ongoing escalation of the Russia/Ukraine crisis. The US and EU are readying a round of fresh economic sanctions against Russia after the country broke international law in recognising pro-Russia rebel-held regions of Eastern Ukraine as independent nations. Meanwhile, Russia’s Parliament just voted in favour of allowing troops to be deployed on a “peacekeeping” mission to the rebel-held regions in Donetsk and Luhansk.

NATO Secretary-General Jens Stoltenberg was recently on the wires and continued to reiterate warnings that Russia continues preparations for a full-scale invasion of Ukraine and many geopolitical strategists view Russia’s latest move as making war with Ukraine more likely. Energy market participants thus continue to fret about potential disruptions to European/global energy supplies should the West enact even tougher sanctions on Russia in case of a full-scale invasion and this should continue to underpin oil prices. Russia produces more than 11M barrels of oil per day, over 10% of global supply. It also supplies about 40% of the EU’s natural gas consumption, with any disruption to gas supplies likely to have a spillover effect on crude oil markets via higher demand.

Calls for oil to hit $100 per barrel are growing loader. Indeed, front-month Brent futures came very close in earlier trade. “The potential for a rally over $100 a barrel has received an enormous boost," analysts at oil broker PVM said on Tuesday, adding that “those who have bet on such a move anticipated the escalation of the conflict”. Elsewhere, analysts at Julius Baer said “we see the oil market in a period of frothiness and nervousness, spiced up by geopolitical fears and emotions… Given the prevailing mood, oil prices may very likely climb into the triple digits in the near term”.

Other themes being watched include indirect US/Iran talks about a return to the 2015 nuclear pact, which could end US sanctions on Iranian oil exports, thus freeing up well over 1M barrels per day in additional supply for global markets. Meanwhile, OPEC+ output policy amid heightened geopolitical tensions in Eastern Europe is under scrutiny. Iraq’s Oil Minister played down the prospect that the group might deviate from their existing policy of increasing output quotas by 400K barrels per day/month.

Geopolitics will remain the main theme to watch, with traders waiting for US/EU sanction announcements and keeping an eye on military developments in Eastern Ukraine. US President Joe Biden will be unveiling sanctions/talking about Ukraine and Russia at 1800GMT. Coming up, on Wednesday, oil traders will be watching the release of weekly US crude oil inventory data from the American Petroleum Institute, which comes a day later than usual owing to the US holiday on Monday.

• US Markit Manufacturing PMI rose more than expected in Feburary accrodin to the flash estimate.
• Index hits highest level in two months. 

The economic activity in the US manufacturing sector continued to expand in February, at a fastest pace than it did in January, with IHS Markit's Manufacturing PMI rising to 57.5 (preliminary) from 55.5. This reading came in above market’s expectation of 56.0.

“The pace of economic growth accelerated sharply in February as virus containment measures, tightened to fight the Omicron wave, were scaled back. Demand was reported to have revived and supply constraints, both in terms of component availability and staff shortages, moderated”, commented Chris Williamson, Chief Business Economist at IHS Markit. 
 

• Markit Services PMI much higher than expectations in February.
• Composite Index rises to 56.0 in February from 51.1 in January.

The business activity in the US service sector gained momentum in February with IHS Markit's flash Services PMI rising to 56.7, up from 51.2 and above the 53 of market consensus. Furthermore, the Composite PMI edged higher to 56 from 51.1 in the same period.

 “Boosting the latest rise in business activity was a quicker increase in new work intakes. Companies noted the strongest expansion in sales since last July. International demand for US services also strengthened in February. With demand conditions improving, service providers continued to hire extra staff. The increase was marked and the fastest in nine months. On the price front, there were sharper increases in both input costs and output prices. Notably, the rate of charge inflation hit a series peak”, mentioned the report.

• Silver record gains during the week, up some 1.30%, despite rising US Treasury yields.
• Market players ignored positive US macroeconomic data in favor of geopolitical headlines.
• XAG/USD Technical Outlook: Neutral-upward, and if it achieves a daily close above $24.00, a move towards the 200-DMA is on the cards.

Silver rally extends to four consecutive trading sessions notwithstanding rising tensions in the Russia/Ukraine conflict. At press time, XAG/USD is trading at $24.20.

In the meantime, the US 10-year Treasury Note yield rises almost two basis points sits at 1.948%, failing to weigh on the white metal, benefited by heightened tensions in Ukraine.

Appetite for safe-haven assets has increased in the last couple of weeks due to uncertainty in Eastern Ukraine. In the case of silver, the non-yielding metal rose to a four-week high but soon will face strong resistance at the 200-day moving average (DMA) at $24.26.

US Markit PMIs came better than expected, while Consumer Confidence falls

During the North American session, some US macroeconomic news crossed the wires. The US Markit Manufacturing and Services PMI for February rose more than expected. The former increased to 57.5 vs. 56.0 estimations, while the latter rose 56.7 vs. 53.0 foreseen. The Markit Composite Index, a measure of both readings, carried on both sectors, expanding to 56.0 from 51.1 January’s reading.

Late, the Conference Board released the Consumer Confidence for the same period as the abovementioned economic indicators. Consumer confidence rose by five-tenths from 110.0 to 110.5, as foreseen but trailed January’s 113.8.

Market players did not react to the abovementioned data, as their primary focus is on geopolitical tussles.

XAG/USD Price Forecast: Technical outlook

The silver daily chart depicts neutral-upward bias after the broken ten-month-old downslope trendline, exposing the 200-DMA at $24.26. Nevertheless, a daily close over the abovementioned trendline would be required so that XAG bulls could use the $24.00-20 area as consolidation as they prepare to break the 200-DMA.

If the mentioned scenario plays out, XAG/USD’s first resistance would be $24.26. Breach of the latter would expose January 20 daily high at $24.70. Once cleared, the $25.00 mark would be the next roof. A decisive break would send XAG/USD rallying towards November’s 2021 highs at $25.40.

• EUR/GBP still on its way to post the first gain in five days.
• Upside capped by the 20-day simple moving average.

The EUR/GBP jumped on Tuesday from two-week lows near 0.8300 to 0.8382, reaching the highest level since last Wednesday. On American hours it is pulling back, trading back under 0.8350, after being unable to hold above the 20-day simple moving average (0.8370).

From Ukraine to BoE comments

The pound weakened earlier on Wednesday following comments from Bank of England deputy governor Dave Ramsden. He said that “some further modest tightening in monetary policy is likely to be appropriate in the coming months”. His words were seen as less hawkish compared to his previous comments. A surprise approached considering that the latest economic report from the UK was firm.

The crisis in eastern Ukraine took another step on Wednesday. Sanction from the European Union and the US are expected to be announced at any time. An escalation of the conflict could weaken the euro further.

Key levels

A daily close above 0.8370 in EUR/GBP should clear the way for a test of the 0.8400 area that also contains the 55-day moving average. A recovery above should alleviate the bearish pressure. The next resistance stands at 0.8425/30.

On the downside, 0.8330 is again a support level to consider, followed by the 0.8300/05 zone. A consolidation below 0.8300 would point to more losses.

Technical levels

The head of the Russian parliament said on Tuesday that Russian President Vladimir Putin had asked for permission to use Russian troops abroad. The Russian parliament will now vote on this request. Presumably, this refers to Russia's plans to set up military bases in the pro-Russia breakaway regions of Eastern Ukraine which Russia recognised as independent nations on Monday. However, the vote could allow Putin to order a further military incursion into Ukraine. 

Market Reaction

Market sentiment remains choppy on Russia/Ukraine/NATO headlines and the latest news appears to have driven a few negative ticks in US equity markets. The S&P 500 recently pulled back under 4350 and into the 4330s where it now trades back in the red on the day by about 0.3%. 

• The S&P 500 has recovered back to trade flat near 4350 after hitting fresh monthly lows in the 4310s.
• Equity markets remain very much driven by geopolitical headlines, with US sanctions on Russia expected to be announced soon.
• The index is trading just under 10% below January’s record highs, meaning it isn’t on course to confirm a “correction”.

It was a choppy start to the session, with the S&P 500 index falling as much as 0.7% in the immediate aftermath of the open to hit fresh monthly lows just above 4310, though having since recovered back to trading flat in the 4350 area. At current levels, the index is trading just under 10% below the record highs it printed at the start of the year – a close of more than 10% below a recent peak would confirm that US equities have undergone a “correction”.

Investors remain nervous ahead of the official announcement of US sanctions against Russia sometime later in the day. The US and its NATO allies are hitting Russia with new sanctions after it recognised the independence of two breakaway regions of Eastern Ukraine and move troops into the area on a “peacekeeping” mission. Market commentators have noted how markets are set to remain very much driven by Russia/Ukraine headlines, making for difficult, unpredictable trading conditions. Investors are worried recent escalation from the Russians raises the risk of a broader Russia/Ukraine conflict, thus raising the risk that the West imposes larger sanctions on Russia that could have an inflationary impact on the global economy.

In the background, traders are also mulling Fed tightening, after Fed policymaker Michelle Bowman on Monday said she had not yet decided whether the Fed should hike interest rates by 25 or 50bps in March. The latest round of US data releases, which saw S&P/Case-Shiller Home Price inflation exceed YoY expectations in December, a stronger rebound than expected in both the Services and Manufacturing sectors according to the preliminary February Markit PMI surveys and slightly better than forecast flash February Consumer Confidence figures have not impacted US equity market sentiment. That speaks to the fact that US data has been and will likely continue to play second fiddle to the themes of geopolitics. Traders may take more notice of Friday’s January Core PCE inflation report if it affects Fed tightening expectations in anyway.

Looking at the other major US indices, the Nasdaq 100 index has recovered back to the north of the 14K level after briefly dipping below 13.9K and now trades 0.3% higher on the day. Bears will be eyeing a test of annual lows in the 13.7K area should the index lose grip of 14K level once more. The Dow, meanwhile, has lost its grip on the 34K level and trades about 0.4% lower on the day. The S&P 500 CBOE Volatility Index, or VIX, has fallen back under 29.00 after briefly testing February highs in the 32.00 area earlier in the session.

• The NZD extend its gains in the week, so far up 0.62%.
• On Tuesday, the global equities sell-off accelerated, while in the FX space, risk-sensitive currency rise vs. safe-haven peers.
• RBNZ: Money market futures have priced in a 100% chance of a 25 bps increase, while odds of a 50 bps lie at 30%.

During the North American session, the New Zealand dollar gains against most G8 currencies, while safe-haven peers stay under pressure. At the time of writing, the NZD/USD is trading at 0.6736, gains 0.63%.

Market participants are risk-off, portrayed by European and US equity futures recording losses. In the FX complex story is different, with the high-beta currencies up, led by the NZD, although contained within familiar levels.

Russia/Ukraine updates

Headlines in the Russian/Ukraine region appear to grab less of traders’ attention. On Monday, Russian President Vladimir Putin recognized two separatist regions known as Donetsk and Luhansk as independent states. His decision was immediately followed by the reactions of Western Europe and the US.

The US President Biden signed an executive order banning investment, trade, and financing to the two Ukraine separatist regions. At the same time, the US Secretary of State Blinken said that it requires a swift and firm response. Also, the European Commission President Von der Leyen said that the Russian decision is a “blatant violation of international law and the Minsk agreements.”

That said, the UK and the Eurozone have imposed sanctions on Russia. Read more here:

• UK PM Johnson: Sanctioning 5 Russian banks, three individuals, only first tranche of what UK willing to do
• EU will hit three Russian banks with an asset freeze and lock them out of EU markets - WSJ

Putting geopolitical jitters aside, on February 23, the Reserve Bank of New Zealand (RBNZ) will host its first monetary policy meeting of the year. Inflation data came hotter than the RBNZ estimated in Q4, which came at 5.7% y/y, well above the central bank target band. That cements a continuation of the bank’s tightening cycle, but the question is, how far would the RBNZ go? Money markets future priced in a 100% odd of 25 bps increase in the meeting, with a 30% chance of a 50 bps hike.

NZ and US economic docket

Regarding the economic docket, New Zealand revealed the Credit Card Spending for January, which rose to 5.5% y/y, higher than the previous month. While on the US front, Markit PMIs for February were featured, with Manufacturing and Services beating estimations, the former at 57.5 higher than the 56 foreseen, while the latter at 56.7 from 53 expected.

According to the latest Consumer Confidence survey conducted by the US Conference Board, US Consumer Confidence fell to 110.5 in February from 111.1 in January. That was a smaller drop than the expected decline to 110.0. The Present Situation Index rose to 145.1 from 144.5 last month, while the Consumer Expectations Index fell a little to 87.5 from 88.8. 

Market Reaction

The DXY does not seem to have reacted to the latest Consumer Confidence figures and continues to pivot either side of the 96.00 level. 

• EUR/USD regains composure and advances beyond 1.1300.
• The greenback remains offered as risk aversion fades away.
•  The US Consumer Confidence comes next in the docket.

The single currency managed to leave behind the geopolitics-led pessimism seen earlier in the session and pushed EUR/USD to the 1.1370 region on Tuesday.

EUR/USD up on dollar weakness

EUR/USD, therefore, reverses three straight sessions with losses and bounces off daily lows in the 1.1290/85 band following the irruption of the appetite for the risk complex, which in turn encouraged USD-bears to return to the market and drag the US Dollar Index (DXY) back to the negative territory.

Bolstering the upside momentum in spot also emerges the moderate rebound in yields of the German 10y Bund to 3-day highs around the 0.28% zone.

In the domestic calendar, better-than-expected Business Climate in Germany for the month of February also underpinned the recovery in the pair. Across the pond, house prices tracked by the FHFA’s House Price Index rose 1.2% MoM in December, while the S&P/Case-Shiller Index rose 18.6% YoY in the same month. Further US data saw flash Manufacturing PMI at 57.5 in February, while the Conference Board will publish its Consumer Confidence gauge later in the session.

What to look for around EUR

EUR/USD continues to look to the geopolitical scenario and the risk appetite trends for near-term direction. On this, further deterioration of the Russia-Ukraine front should keep the pair under pressure via a stronger dollar. In the meantime, 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. The threat to this view, as usual, comes from the Fed and a potential tighter-than-expected start of the normalization of its monetary conditions.

Key events in the euro area this week: Germany, EMU Flash PMIs (Monday) – Germany IFO survey (Tuesday) – Germany GfK Consumer Confidence, EMU Final January CPI (Wednesday) – Eurogroup Meeting, Germany Final Q4 GDP, EMU Final Consumer Confidence, ECB Lagarde (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 gaining 0.32% at 1.1344 and faces the next up barrier at 1.1395 (weekly high Feb.16) followed by 1.1487 (200-week SMA) and finally 1.1494 (2022 high Feb.10). On the other hand, a drop below 1.1287 (weekly low Feb.22) would target 1.1279 (weekly low Feb.14) en route to 1.1186 (monthly low Nov.24 2021).

According to economists at Scotiabank, USD/KRW will likely fall below the 1,190 level before trading even lower once external uncertainties start to fade away.

BoK expected to hold its policy rate steady at 1.25%

“The Bank of Korea (BoK) is expected to hold its policy rate steady at 1.25% on Thursday, but remains on track to deliver another 25bp rate hike in the second quarter.”

“As a traditional high-beta currency, the Korean won will remain susceptible to external uncertainties. In the near-term, the ongoing Russia-Ukraine crisis could dampen market sentiment abruptly.”

“USD/KRW is now staying in an ascending channel, and will likely fall below the 1,190 level before trading even lower when external uncertainties start to fade away.”

USD/CAD continues to hold its well-established range around 1.27. Economists at Scotiabank highlights the key technical levels to keep an eye on.

Firm resistance remains at 1.2790/00

“Firm resistance remains 1.2790/00.”

“We spot support at 1.2720/25 intraday.”

“Stronger support is at 1.2670/75.” 

• After hitting fresh multi-month highs at $1914, spot gold is consolidating above $1900 as the Russia/Ukraine crisis escalates.
• As traders worry about the rising risk of a full-scale Russian military incursion into Ukraine, gold will likely remain supported.

As the Russia/Ukraine crisis continues to escalate, most recently with Russia recognising the independence of and moving troops into two separatist regions in eastern Ukraine, prompting NATO nations to announce/prepare new sanctions on Russia, gold has moved back above $1900. Spot prices (XAU/USD) hit fresh multi-month highs at $1914 on Tuesday and, though pulling back from these highs printed during Asia pacific trade as dip-buying facilitating an intra-day rebound in global equities markets, has remained above the key $1900 level.

With market participants nervous that Russia/pro-Russia separatists in Eastern Ukraine could initiate further hostilities against Ukraine, thus further escalating the risk of an all-out Ukraine/Russia conflict, gold is likely to remain well underpinned this week. Brent oil spiked to close to $100 per barrel on Tuesday and EU natural gas prices were up sharply as Germany pledged not to approve the Nord Stream 2 pipeline that would bring gas directly to Germany from Russia. The upside risks posed to global inflation from any continued spike in energy prices as a result of further Russia/Ukraine crisis escalation is likely boosting demand for gold as an inflation hedge.

Recent Fed speak and US data releases have not had much of an impact on gold in recent days as price action takes its cue from geopolitics. Hawkish commentary from Fed’s Michelle Bowman on Monday, who essentially said she was still undecided as the whether the Fed should hike rates by 25 or 50bps in March, was roundly shrugged off. That suggests that other Fed speak this week is also likely to be ignored, or, at least, play second fiddle, with this also likely the case for Friday’s January US Core PCE inflation data. Ahead of that, traders should keep an eye on upcoming US PMI and CB Consumer Confidence surveys, both the flash readings for February.

EUR/USD touched a fresh weekly low of 1.1288 but has managed to rebound. Economists at note that the world’s most popular currency pair could dive to the 1.1180 mark on failure to hold 1.1280.

Risk of decline if 1.1280 breaks

“A break below last week low of 1.1280 can take the pair towards 1.1260 and projections of 1.1180.”

“First hurdle is at 1.1410.”

10-year US Treasury yields faced resistance near 2.06% and has subsequently broken below a steeper channel. However, economists at Société Générale expect yields to stay above the 1.66% level.

Channel band at 1.92% caps immediate upside

“March 2021 peak of 1.77% is first layer of support. A large downside is not envisaged; the neckline of the Inverse Head and Shoulders confirmed earlier at 1.66% is expected to be an important level.”

“Channel band at 1.92% caps immediate upside.”

The safe-haven US dollar has given back some ground versus the euro. Still, economists at Rabobank expect the EUR/USD pair to edge lower towards 1.11 in the coming months before paring back losses later in the year.

Some indigestion on attempts to break below 1.13

“The market is already positioned long of USD and this appears to be creating some indigestion on attempts to break below EUR/USD 1.13.”

“Given the ongoing geopolitical risks, signs that the ECB will remain cautious on policy tightening and expectations that the Fed will be hiking rates in just a few weeks’ time, we see scope for EUR/USD to edge towards 1.11 during H1 before turning higher later in the year.”

USD/JPY is coming under increasing pressure following the further rise in geopolitical tensions. A close below the 55-day moving average (DMA) at 114.50 should see weakness extend further towards next support at 114.16, then more importantly at 113.59/48, analysts at Credit Suisse report.

Close below 113.59/48 to see a bearish ‘double top’ established

“A close below 55-DMA and potential uptrend from late September at 114.50 would raise the prospect of further weakness in the broader range with support seen next at 114.16, then 113.59/48 – the January lows and 38.2% retracement of the September/January rally. A close below here would see a bearish ‘double top’ established to mark a more important turn lower, with next support seen at the December lows and 200-DMA at 112.56/17.

“Resistance at the 115.13 capping can keep the immediate risk lower. Above can see strength back to 115.80/88, but with fresh sellers expected here.”

• USD/CHF staged a solid rebound from the four-week low touched earlier this Tuesday.
• A recovery in the risk sentiment undermined the safe-haven CHF and extended support.
• Bulls seemed unaffected by modest USD weakness as the focus remains on geopolitics.

The USD/CHF pair maintained its bid tone through the early North American session, with bulls now awaiting sustained strength above the 0.9200 round-figure mark.

The pair staged a goodish rebound from the 0.9150 area, or the four-week low touched earlier this Tuesday and has now reversed a major part of the previous day's losses. The momentum was sponsored by receding safe-haven demand amid a turnaround in the global risk sentiment, which weighed on the Swiss franc and extended some support to the USD/CHF pair.

A Kremlin spokesperson said Russia is still open to a diplomatic solution and has an interest in that. This helped ease concerns about the worsening Ukraine crisis and triggered a solid recovery in the equity markets. That said, the risk of a further escalation in tensions between Russia and the West over Ukraine should cap the optimistic move in the markets.

In fact, Britain imposed sanctions on five Russian banks, while German Chancellor Olaf Scholz issued an order to halt the process of certifying the Nord Stream 2 gas pipeline. The United States is also expected to announce new economic sanctions against Russia. This comes after the latter recognized two breakaway regions in eastern Ukraine as independent entities.

Nevertheless, the USD/CHF pair, so far, has managed to stick to its intraday gains and seemed rather unaffected by modest US dollar weakness. Meanwhile, a strong intraday rally in the US Treasury bond yields should help limit any meaningful USD decline. This, in turn, favours bullish traders and supports prospects for a further appreciating move for the pair.

Market participants now look forward to the release of the flash US PMI prints for February. 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 the situation in Ukraine, which will drive the market sentiment and allow traders to grab some short-term opportunities.

Technical levels to watch

USD/RUB is inching closer to the hurdle of 81.00/81.50. A move above the latter would open up gains towards 82.85 and potentially the 2016 high of 86.00, economists at Société Générale report.

Important support aligns at 74.25/73.70

“Weekly MACD has crossed into positive territory denoting prevalence of upside momentum.”

“If the pair establishes itself beyond 81.00/81.50, this could signal a larger up move towards 82.85 and perhaps even towards the peak of 2016 at 86.00.”

“The low formed earlier this month at 74.25/73.70 should be an important support near-term.”

According to a WSJ reporter, the EU will announce plans to hit three Russian banks with an asset freeze and a lock-out from the EU markets. Russia's VEB, Rossiya and Promsvyazbank will be the three bank's affected, with the latter two also being sanctioned by the UK. 

• USD/TRY adds to the weekly rebound near 14.0000.
• The pair edges higher despite the offered bias in the dollar.
• Markets’ focus remains on the Russia-Ukraine conflict.

The Turkish lira depreciates further and motivates USD/TRY to clinch fresh 6-week tops around 13.9000 on Tuesday.

USD/TRY now targets 14.0000

USD/TRY advances for the third session in a row and extends the positive start of the week despite the greenback now sheds initial gains on the back of renewed inflows into the risk-associated universe.

However, further deterioration in the geopolitical scenario sent prices of the European reference Brent crude to the area just below the psychological $100.00 mark per barrel earlier in the session, just to give away part of those gains afterwards. On this, it is worth recalling that Turkey is a large oil-dependent economy, and higher oil prices are expected to morph into extra inflationary pressures and hurt households’ confidence.

The offered stance in the lira comes in tandem with further consolidation in yields of the Turkey 10y bond around the 20% area.

In the Turkish calendar, Capacity Utilization eased a tad to 76.6% in February (from 77.6%) and Manufacturing Confidence ticked higher to 109.8 (from 109.5) also for the current month.

What to look for around TRY

The pair attempts to break above its multi-week consolidative theme and approaches the 14.00 mark. The lira, in the meantime, remains surprisingly stable so far this year, particularly after the government announced a lira time-deposit protected scheme in late December and after the CBRT left the policy rate unchanged in the last couple of meetings. However, the lira is expected to remain under scrutiny amidst rampant inflation, negative real interest rates and the omnipresent political pressure to favour lower interest rates.

Key events in Turkey this week: Capacity Utilization, Manufacturing Confidence (Tuesday) – Economic Confidence Index (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. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is advancing 1.19% at 13.8299 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 13.9013 (monthly high Feb.22) seconded by 13.9319 (2022 high Jan.10) and then 18.2582 (all-time high Dec.20).

• GBP/USD slipped back to the 1.3550 area in recent choppy trade with FX markets mixed as traders assess Russia/Ukraine developments.
• Russia recognised the independence on rebel-held regions in Eastern Ukraine and moved in troops on Monday, escalating tensions with Ukraine.
• The UK has already announced sanctions and the EU and US are expected to follow suit shortly.

GBP/USD has come under selling pressure on Tuesday, falling back to the 1.3550 area in recent trade from earlier session highs at 1.3600 to now trade with losses of about 40 pips of 0.3% on the day. G10 FX market trade is choppy and mixed as traders/market participants assess the fallout of Russia’s decision on Monday to recognise the independence of rebel-held territories in Eastern Ukraine and to subsequently sign new defense agreements with the regions. Russian troops have since moved in on a “peacekeeping” mission to the rebel-held areas of Donetsk and Luhansk. Investors fear this could be a precursor to a broader Russia/Ukraine conflict as separatist forces continue to accuse Ukraine’s military of aggression.

UK PM Boris Johnson recently became the first major Western nation to formally announce sanctions against Russia for what it says is a breach of international law and this may have something to do with recent GBP underperformance. Indeed, at present, GBP is the worst performing G10 currency on the day and, somewhat oddly, other risk-sensitive G10 currencies such as NZD, NOK and SEK have all been performing very well. Traders will likely continue to face difficulties navigating choppy, unpredictable trading conditions as further sanction announcements from the EU and US beckon and NATO leaders continue to warn of the risk of further Russian aggression against Ukraine.

In terms of domestic UK fundamentals, BoE Deputy Governor Dave Ramsden was on the wires on Tuesday and was cautious about the longer-term outlook for policy amid heightened geopolitical uncertainty. Ramsden said that the BoE would need to continue to raising interest rates a little more over the coming months, but warned that the Russia/Ukraine crisis was making it harder to predict the longer-term policy path.

Ahead, focus will switch to US data with flash February Markit PMI surveys out at 1445GMT ahead of the preliminary reading of February CB Consumer Confidence at 1500GMT. Focus will then remain on various appearances from BoE and Fed policymakers speaking over the course of the rest of the week, as well as on the second estimate of US Q4 GDP numbers on Thursday and US January Core PCE inflation on Friday. But geopolitics will remain in the driving seat as investors observe events unfolding and ponder what might be Russian President Vladimir Putin’s next move.

• USD/CAD witnessed an intraday pullback from the one-week high touched earlier this Thursday.
• A turnaround in the risk sentiment weighed on the safe-haven USD and prompted fresh selling.
• Retreating crude oil prices could undermine the loonie and help limit the downside for the pair.

The USD/CAD pair extended its retracement slide from the one-week high and dropped to a fresh daily low, around the 1.2725-1.2720 area during the early North American session.

The pair continued with its struggle to make it through the 1.2770-1.2780 supply zone and witnessed some intraday selling amid modest US dollar weakness. A Kremlin spokesperson said that Russia is still open to diplomacy and has an interest in that, which helped ease market concerns over the worsening situation in Ukraine. This, in turn, led to a solid recovery in the equity markets and drove flows away from traditional safe-haven assets, including the greenback.

That said, a combination of factors could limit any meaningful slide for the USD. Despite the latest development, fears about a further escalation in tensions between Russia and the West over Ukraine should keep a lid on any optimistic move in the markets. Apart from this, a sharp rally in the US Treasury bond yields should act as a tailwind for the buck and the USD/CAD pair amid retreating crude oil prices, which tend to undermine the commodity-linked loonie.

Nevertheless, the USD/CAD pair, for now, seems to have snapped three successive days of the losing streak and remains at the mercy of the situation in Ukraine. In the meantime, traders on Tuesday might take cues from the release of the flash US PMI prints. Apart from this, the US bond yields would influence the USD demand. This, along with oil price dynamics should provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday, February 23 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of right major banks. 

The RBNZ is widely expected to deliver 25 basis points (bps) to the Official Cash Rate (OCR), raising it to 1.0% from 0.75% previous. 

ANZ

“We expect the RBNZ will raise the Official Cash Rate (OCR) 25bp to 1.00%. The RBNZ has a big job to do, and we would not rule out a 50bp hike. But as in November, there are lower-risk ways the RBNZ could tighten conditions more aggressively if they feel it’s necessary.”

Westpac

“We expect the RBNZ to raise the Official Cash Rate by another 25 basis points to 1.00%. The RBNZ needs to take the heat out of domestic demand to rein in inflation pressures. But unlike many of its overseas peers, the RBNZ already has this process under way. Mortgage rates have already risen in anticipation of OCR hikes, and this is clearly having the desired effect on the housing market. To complete the job, the RBNZ will need to follow through on those rate hikes. Our forecast remains for the OCR to reach a peak of 3% by the second half of next year. That profile can be comfortably achieved in 25 basis point increments.”

Standard Chartered

“We expect the RBNZ to hike the policy rate to 1.0% from 0.75% previously. Inflation has continued to surge, inflation expectations are rising further, and the labour market continues to tighten. We expect a total of four hikes in 2022. Our relatively less hawkish call is predicated on our view that it will be challenging for the RBNZ to raise the OCR above the neutral rate in the medium-term on the premise that supply-side pressures and labour shortages should ease in the quarters ahead as borders reopen. The risk to our call is faster-than-expected normalisation. We will be watching the tone of the policy statement amid slightly softer sentiment indicators recently. We would also keep an eye on cash rate projections to see if the RBNZ projects an even more aggressive hiking cycle.”

TDS

“We expect the RBNZ to lift the OCR by 25bps to 1% even though the Nov'21 MPS OCR track implied a 50bps hike. Aside from the headline decision, the market's focus will be on 1) the projected OCR track - has the terminal rate been lifted significantly from 2.60% in the Nov'21 SoMP (mkt implied is around 2.6%) and 2) the Bank's thoughts on LSAP runoff.”

ING

“We expect another 25bp hike and signals that more back-to-back rate increases are on their way, which should give some help to the New Zealand dollar.”

MUFG

“In light of higher inflation, tighter labour market conditions, the buoyant housing market, and long gap since the last RBNZ policy meeting, we believe there is a high risk of a 0.50 point hike. It poses some upside risk for the NZD in the near-term.”

Citibank

“Our base case is for the RBNZ to deliver a 25bps rate hike this week, and for the MPC to increase the OCR by 100bps this year to 1.75% by year’s end. However, the risk is that the RBNZ could increase the pace of monetary tightening, rather than by 100bps of tightening in 2022, to 125bps or even 150bps this year.” 

Wells Fargo

“We, along with the consensus, expect the central bank to raise rates another 25 bps to 1.00%. We expect the RBNZ to continue its shift toward a less accommodative monetary policy stance. At the same time, we favor a more measured 25 bps rate hike as opposed to a larger 50 bps increase, particularly after the central bank governor said late last year the RBNZ would take a ‘cautious’ approach to tightening by moving in 25 bps increments ‘for now’.”

See:

• NZD/USD to struggle to surpass 0.6750, RBNZ impact secondary to external factors – ING

• NZD/USD: RBNZ needs to deliver 50bps hike and hawkish guidance to strengthen the kiwi – MUFG

EUR/JPY weakness has quickly accelerated again. A close below the 55-day moving average (DMA) at 129.99 should add further momentum to the decline, economists at Credit Suisse report.

Resistance at 130.92 set to cap

“A close below the 55-DMA at 129.99 should add further momentum to the decline with key support then seen next at the uptrend from May 2020 at 128.88/84.”

“Whilst we would look for an attempt to find a fresh floor 128.88/84, a closing break would warn of a more damaging turn lower with support then seen next at the January lows at 128.34/26.” 

“Resistance is seen at 129.99 initially, then 130.34, with the immediate risk seen staying lower whilst below 130.92.”

• A combination of factors pushed AUD/USD to a near two-week high on Tuesday.
• RBA rate hike bets acted as a tailwind amid the emergence of fresh USD selling.
• A turnaround in the risk sentiment further benefitted the perceived riskier aussie.

The AUD/USD pair maintained its strong bid tone heading into the North American session and was last seen trading near the 0.7215 region, just below the two-week high.

Following an early slide to the 0.7170 area, the AUD/USD pair regained positive traction for the second successive day and was supported by a combination of factors. Rising bets for an eventual interest rate hike by the Reserve Bank of Australia acted as a tailwind for the domestic currency. Apart from this, renewed US dollar selling further provided a lift to the perceived riskier aussie.

The nervousness over the worsening situation in Ukraine eased after a Kremlin spokesperson said that Russia is still open to diplomacy and has an interest in that. This, in turn, led to a solid rebound in the equity markets and drove flows away from traditional safe-haven assets, including the buck. The sentiment, however, remains fragile amid the risk of a further escalation in the Ukraine crisis.

Russian President Vladimir Putin upped the ante on Monday by recognizing two breakaway regions in eastern Ukraine as independent entities and sending troops to maintain peace. This fueled fears about a full-blown East-West conflict that could unleash a major war. In fact, British Prime Minister Boris Johnson imposed sanctions on five Russian banks and banned three individuals from travelling to the UK.

The United States is also expected to announce new sanctions against Russia, which should keep a lid on any optimistic move in the markets. This, along with a solid rebound in the US Treasury bond yields, should act as a tailwind for the greenback and cap the upside for the AUD/USD pair. Hence, it will be prudent to wait for some follow-through buying before positioning for any further appreciating move.

Even from a technical perspective, the AUD/USD pair, so far, has struggled to break through the 100-day SMA. The said barrier coincides with the monthly high, around mid-0.7200s, which if cleared decisively will be seen as a fresh trigger for bullish traders. The momentum could then push spot prices beyond an intermediate resistance near the 0.7275-0.7280 area, towards reclaiming the 0.7300 round figure.

Market participants now look forward to the release of the flash US PMI prints for February. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the incoming geopolitical headlines and the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch

UK PM Boris Johnson announced on Tuesday that the UK will sanction five Russian banks and three individuals, including powerful Russian oligarch Gennady Timchenko, before adding that this is just the first tranche of what we are prepared to do. 

• USD/JPY staged a goodish rebound from the near three-week low touched earlier this Tuesday.
• A turnaround in the risk sentiment undermined the safe-haven JPY and remained supportive.
• Bulls further took cues from rebounding US bond yields, though weaker USD might cap gains.

The USD/JPY pair climbed to a fresh daily high during the mid-European session, with bulls now looking to extend the momentum further beyond the key 115.00 psychological mark.

The pair attracted some dip-buying near mid-114.00s and staged a goodish rebound from the two-and-half-week low touched earlier this Tuesday. The intraday uptick picked up in the wake of a dramatic turnaround in the global risk sentiment, which tends to undermine the safe-haven Japanese yen.

The market nervousness over the worsening Ukraine crisis eased after a Kremlin spokesperson said Russia is still open to a diplomatic solution and has an interest in that. This, along with a strong recovery in the US Treasury bond yields, inspired bullish traders and provided a lift to the USD/JPY pair.

The optimism, however, is likely to remain capped amid the risk of a further escalation in tensions between Russia and the West. Russia upped the ante on Monday by recognizing two breakaway regions in eastern Ukraine as independent entities and allowing troops to enter the area to maintain peace.

The development fueled fears about a full-blown East-West conflict. In fact, the US and its allies are expected to announce new sanctions against Russia. This should continue to lend support to the JPY and 
any meaningful upside for the USD/JPY pair amid the emergence of fresh selling around the US dollar.

Hence, it remains to be seen if bulls are able to capitalize on the move or the USD/JPY pair meets with a fresh supply at higher levels. Nevertheless, the market focus will remain on the situation in Ukraine, which will influence the risk sentiment and provide some impetus to the USD/JPY pair.

Market participants now look forward to the US economic docket, featuring the release of the flash PMI prints, due later during the early North American session. This, along with the US bond yields and the USD price dynamics, should produce some trading opportunities around the USD/JPY pair.

Technical levels to watch

• EUR/USD reclaims ground lost and advances to 1.1360.
• Further upside could well see the 1.1395 level retested.

EUR/USD reverses the recent geopolitical-led weakness and advances well north of the 1.1300 barrier on Tuesday.

Extra gains in the pair needs to clear the 5-month line near 1.1360 to alleviate downside pressure and allow for another test of the weekly high at 1.1395 (February 14). Further up is seen the 200-week SMA at 1.1487 closely 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 1.1632.

EUR/USD daily chart

• DXY fades the initial spike and sinks below 96.00 on Tuesday.
• The next support of note comes near 95.70.

DXY gives away earlier gains and returns to the sub-96.00 zone on turnaround Tuesday.

The index seems to have moved into a consolidative phase for the time being. A close above last week’s top at 96.43 (February 14) should open the door to further upside in the near term, while immediately to the downside comes the 95.70 region.

The short-term constructive stance remains supported by the 5-month line, today near 95.40, while the outlook for the dollar is seen as positive above the 200-day SMA at 93.79 in the longer run.

DXY daily chart

Enrico Tanuwidjaja, Economist at UOB Group, assesses the latest Current Account figures in Indonesia.

Key Takeaways

“Indonesia’s current account posted a surplus of USD 1.4bn (0.45% of GDP) in 4Q21, compared to a surplus of USD 5.0bn (1.7% of GDP) in 3Q21.”

“With that development, the total Balance of Payment (BOP) in 2021 recorded a high surplus of USD 13.5bn, supported by current transaction that recorded a surplus.”

“For 2022 we forecast that current account will return to a deficit of 0.5% of GDP as imports demand is likely to hasten up, while exports revenue is expected to moderate significantly.”

• EUR/JPY regains upside traction and bounces off 129.30.
• The next up barrier comes at the weekly high at 131.90.

EUR/JPY reverses three consecutive daily retracements and regains some traction further north of the 130.00 mark on Tuesday.

Further recovery in EUR/JPY now faces a temporary hurdle at the 10-day SMA at 130.96. If cleared, then a potential test of the weekly high at 131.90 should start emerging on the horizon in the near term.

While above the 2-month line near 128.80, further upside in the cross should remain on the table in the very near term. On the longer term, the outlook for the cross is seen as negative as long as it trades below the 200-day SMA, today at 130.40.

EUR/JPY daily chart

German Chancellor Olaf Scholz said on Tuesday that Russia's decision to recognise the breakaway regions of Eastern Ukraine, Donetsk and Luhansk, as independent nations was a serious breach of international law, as reported by Reuters.

Additional takeaways

"International community must respond to unjustified reaction from Russia."

"Ukraine President deserves respect for not allowing himself to be provoked by Russia."

"We must reassess the situation in particular regarding Nord Stream 2."

"Certification of Nord Stream 2 cannot go ahead given Russia's latest actions."

Market reaction

These comments don't seem to be having a significant impact on the shared currency's market valuation. As of writing, the EUR/USD pair was up 0.38% on a daily basis at 1.1353.

Bank of England (BoE) Deputy Governor Dave Ramsden said on Tuesday that the UK economy has so far proved resilient, notwithstanding the scarring effects of COVID and Brexit, as reported by Reuters.

Additional takeaways

"A central question for the outlook is whether the UK economy can build on the resilience shown to date and continue to expand in the face of the ongoing effects of energy prices and other shocks."

"Unlike earlier inflationary episodes, where we saw more persistence in inflation caused by ineffective policy and policy frameworks, this time we have a framework which empowers us to take action."

"Uncertainty makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term."

"In the near term, some further tightening seems likely to be needed, to prevent current high inflation becoming embedded in wage and price settings."

"There are also downside risks to inflation ahead, risks from tightening monetary policy too much."

Market reaction

GBP/USD stays on the back foot following these comments and was last seen losing 0.15% on the day at 1.3575.

A Kremlin spokesperson said on Tuesday that Russia recognizes the breakaway east Ukraine regions with the borders that they have claimed, as reported by Reuters.

Additional takeaways

"We have no information whether Russian forces have already entered Donbass."

"We hope decisions on recognising Donbass will help restore calm."

"Decision on sending forces into Donbass will depend on how the situation develops."

"Main thing is to save lives and ensure the safety of population under constant provocation from Ukraine armed forces."

"Eussia is still open to diplomacy and has an interest in that."

Market reaction

These comments don't seem to be having a noticeable impact on risk perception. The US Dollar Index was last seen posting small daily losses at 95.98.

USD/CNH can extend the downside to the 6.3130 region in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectations for USD to ‘dip below 6.3180’ yesterday did materialize as it traded within a range of 6.3193/6.3302. The underlying tone appears to have improved and for today, USD could trade between within a higher range of 6.3230/6.3350.”

Next 1-3 weeks: “There is no change in our view from yesterday (21 Feb, spot at 6.3245). As highlighted, despite the drop to a fresh low of 6.3180 last Friday, downward momentum has not improved by much. That said, USD could weaken to 6.3130. The downside risk is intact as long as USD does not move above 6.3390 (no change in ‘strong resistance’ level).”

Russian Foreign Minister Sergei Lavrov said on Tuesday that Ukraine does not have a right to sovereignty, Reuters reported, citing the Ifax news agency.

Additionally, Russia's foreign ministry called on other countries to recognise the two breakaway regions in eastern Ukraine.

Meanwhile, Ukrainian President Volodymyr Zelensky said that they believe that Russia is trying to create a legal basis for further aggression against Ukraine. "Sanctions should include a complete shutdown of Nord Stream 2," Zelensky added.

Market reaction

Markets remain risk-averse following these comments. As of writing, the Euro Stoxx 600 Index was down 0.9% on the day, Germany's DAX 30 was losing 1.3% and the S&P Futures were falling 1.1%.

The Russia-Ukraine conflict has escalated over the past few hours. Subsequently, gold has climbed to around $1,915, the immediate vicinity of last June’s high. Strategists at Commerzbank expect XAU/USD to post further gains as Ukraine situation looks increasingly alarming.

Gold as safe haven

“If the Ukraine crisis escalates further, we believe that gold will remain in demand amid the increased risk aversion, meaning that its price will probably make further gains.”

“The yellow metal is profiting from the slide on the stock markets and the considerable fall in bond yields – both being indications of high-risk aversion.” 

“The firm US dollar, which is likewise being seen as a safe haven, is presumably precluding any steeper upswing in the gold price.”

• Gold witnessed an intraday pullback from the fresh multi-month high set earlier this Tuesday.
• Modest USD strength undermined the commodity amid a recovery in the global equity markets.
• Geopolitical risks warrant some caution before confirming that the XAU/USD has topped out.

Gold struggled to capitalize on its early modest gains to the highest level since early June 2021 and witnessed an intraday turnaround from the $1,914 region. The retracement slide extended through the first half of the European session and dragged spot prices below the $1,900 mark, though lacked follow-through. The sharp pullback could be attributed to some profit-taking amid a pickup in demand for the US dollar, which tends to undermine the dollar-denominated commodity.

Apart from this, modest recovery in the equity markets exerted additional downward pressure on the safe-haven precious metal. The market nervousness over the worsening Ukraine crisis eased after the Russian envoy to the United Nations, Vasily Nebenzya, said that they remain open to a diplomatic solution. That said, the risk of a further escalation in tensions between Russia and the West over Ukraine should act as a tailwind for gold and help limit any further losses.

Russian President Vladimir Putin upped the ante on Monday by recognizing two breakaway regions in eastern Ukraine as independent entities and ordered troops to enter the area to maintain peace. The latest development fueled fears about a full-blown East-West conflict, which would keep investors on edge. Apart from this, expectations that the United States and allies will announce new sanctions against Russia should lend support to gold prices.

Moreover, a sharp decline in the US Treasury bond yields might cap gains for the USD and benefit the non-yielding gold. The recent political development might force investors to scale back their speculations for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the global flight to safety, dragged the US bond yields lower and warrant caution before placing aggressive bearish bets around gold.

Market participants now look forward to the US economic docket, highlighting the release of the flash PMI prints later during the early North American session. This, along with the US bond yields, will drive demand for the greenback and provide some impetus to the metal. The key focus, however, remains on the situation in Ukraine, which will play a key role in influencing the broader market risk sentiment and infusing some volatility around gold prices.

Technical outlook

From a technical perspective, slightly overbought RSI (14) on the daily chart seemed to be the key factor that prompted traders to lighten their bullish bets. Hence, any subsequent decline might still be seen as a buying opportunity near the $1,888-$1,887 region. This should help limit the downside near the $1,880-$1,877 horizontal zone. Failure to defend the said support levels could pave the way for an extension of the corrective slide towards the $1,855-$1,853 zone. The latter marks a downward-sloping trend-line resistance breakpoint, extending from June 2021, and should act as a strong base for gold prices.

On the flip side, bulls might now wait for some follow-through buying beyond June 2021 high, around the $1,916 region before placing fresh bets. Gold could then accelerate the momentum and climb to the next relevant hurdle near the $1,930-$1.932 area.

Gold daily chart

Key levels to watch

Brent has reached a new seven-and-half-year high of $99 per barrel while WTI has climbed to $95 per barrel. Strategists at Commerzbank expect oil prices to reach the $100 level sooner rather than later.

Oil prices targeting $100 mark

 “Russian President Putin signed a decree recognising the independence of the two Eastern Ukrainian provinces of Donetsk and Luhansk. This constitutes a noticeable escalation of the conflict and is likely to see the West respond by imposing tough sanctions on Russia. It also raises the risk of disruptions to Russian oil and gas shipments.”

“Additional oil from OPEC+ cannot be counted on either, at least for the time being. Following the lead of Saudi Arabia and the United Arab Emirates, Iraq has also rejected calls for a more pronounced expansion of oil production by OPEC+. Moreover, OPEC+ does not want to see commercial stocks increase, he said. It is therefore only a question of time before the $100 mark is reached.”

The European Central Bank (ECB) has signalled a pivot to policy normalisation, and economists at ABN Amro now expect rates to start rising in December. Therefore, they have changed their forecasts in EUR/USD.

ECB to start raising its policy rate before the end of this year

“Following the ECB meeting, we changed our ECB view. We now expect a modest rise in the deposit rate from the end of this year. We think that if our view proves to be correct then the euro still weakens versus the US dollar this year and next year. But it is likely that the overall size of the move is smaller than we originally had.” 

“Our new forecast for end-2022 is 1.07 (was 1.05) and for end 2023 1.05 (was 1.0).”

• German IFO Business Climate Index continued to improve in February.
• IFO notes the Ukraine conflict remains a risk factor.
• EUR/USD trades in the positive territory above 1.1320.

The headline German IFO Business Climate Index improved to 98.9 in February from 96 (revised from 95.7 in January). This reading came in higher than the market expectation of 96.5.

Further details of the report showed that the Current Assessment Index rose to 98.6 from 96.2 and the Expectations Index advanced to 99.2 from 95.8. Both of these prints surpassed analysts' estimates.

Additional takeaways from the publication

"Current IFO index results not influenced by Current situation in Ukraine."

"German economy is expecting an end to the coronavirus crisis; the situation in Ukraine however remains a risk factor."

"Rising energy prices as a result of the crisis in Ukraine will certainly be a drag on businesses."

"Mood in manufacturing sectors improved significantly but bottlenecks continue to be a problem."

"Uncertainty to increase dramatically, Ukraine conflict may escalate further."

"Mood has improved in retail but bottlenecks are still a problem.

Market reaction

The EUR/USD edged higher on the upbeat data and was last seen rising 0.15% on the day at 1.1325.

GBP/USD has declined below 1.3600. The pair could extend its slide in case sellers manage to drag it below the key 1.3560 support area, FXStreet’s Eren Sengezer reports.

Sellers to take action with a drop below 1.3560

“The risk perception is likely to remain the primary market drive on Tuesday and geopolitical tensions are unlikely to ease unless Russia takes a step back and reaffirms its intention to look for a diplomatic solution.”

“In case a four-hour candle closes below 1.3560, additional losses toward 1.3540 (static level) and the 1.3510/1.3500 area (static level, psychological level) could be witnessed.”

“On the upside, interim resistance seems to have formed at 1.3580 (static level) ahead of 1.3600 (psychological level) and the 1.3630/1.3640 area (static level, February 18 high).”

UOB Group’s FX Strategists see USD/JPY grinding lower, while a drop below 114.40 could prompt losses to accelerate in the short-term horizon.

Key Quotes

24-hour view: “We expected USD to ‘trade between 114.75 and 115.25’ yesterday. USD subsequently edged lower to 114.70 before closing on a soft note at 114.74 (-0.23%). Downward momentum has improved, albeit not by much and USD could continue to edge lower. That said, any decline is expected to encounter solid support at 114.40. Resistance is at 114.95 followed by 115.10.”

Next 1-3 weeks: “Our latest narrative was from last Friday (18 Feb, spot at 115.40) where we highlighted that downward momentum has improved but USD has to close below 114.75 before a sustained decline is likely. USD dropped to 114.70 yesterday before closing at 114.74 (-0.23%). Downward momentum has improved slightly and there is room for USD to edge lower. Looking ahead, USD has to break the solid support at 114.40 before a more sustained decline can be expected. The next support is at 114.15. On the upside, a breach of 115.30 (‘strong resistance’ level was at 115.55) would indicate that the current mild downward pressure has eased.”

• GBP/USD extended the overnight pullback and edged lower on Tuesday amid stronger USD.
• Russia-Ukraine conflict dented the risk sentiment and benefitted the safe-haven greenback.
• Rising bets for more BoE rate hikes acted as a tailwind for the GBP and helped limit losses.

The GBP/USD pair recovered a few pips from the multi-day low touched during the first half of the European session and was last seen trading around the 1.3580 area, down nearly 0.15% for the day.

The pair extended the previous day's modest pullback from the vicinity of the monthly high, around the 1.3640 area and witnessed some follow-through selling on Tuesday. A further escalation in tensions between Russia and Ukraine triggered a fresh wave of the global risk-aversion trade. This drove some haven flows towards the US dollar and turned out to be a key factor that exerted downward pressure on the GBP/USD pair.

Russian President Vladimir Putin upped the ante on Monday and formally recognised two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities. Putin later ordered troops to enter the area to maintain peace and fueled fears about a full-blown East-West conflict. This was seen as a key factor that took its toll on the global risk sentiment and led to a steep decline in the equity markets.

Meanwhile, the latest geopolitical developments forced investors to scale back their expectations for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the anti-risk flow, dragged the US Treasury bond yields lower and capped gains for the USD. Apart from this, rising bets for additional rate hikes by the Bank of England helped limit the downside for the GBP/USD pair.

Hence, it will be prudent to wait for strong follow-through selling before positioning for any further decline amid absent relevant market moving economic releases from the UK. Later during the early North American session, traders might take cues from the US flash PMI prints. The focus, however, will remain on the situation in Ukraine, which will influence the USD and provide some trading impetus to the GBP/USD pair.

Technical levels to watch

The heightened risk of conflict between Ukraine and Russia has triggered a reversal of the euro’s gains from earlier this month. Economists at MUFG Bank expect the EUR/GBP pair to test the key support level at 0.83.

Pressure on the BoE to keep tightening policy going forward

“Recent price action highlights that market participants are initially treating the potential conflict as a negative shock for Europe’s economy that is already weighing on euro performance.” 

“The higher price of oil resulting from the tensions between Russia and Ukraine provides a further complication for the ECB, and will keep pressure building on the ECB to tighten policy unless evidence of a sharper slowdown in growth emerges.”

“Market participants will be listening closely comments from a large number of BoE officials in the week ahead to assess the likelihood of a larger 0.50-point hike on 17th March. If there is any indication from MPC members that they are erring toward a larger hike and/or tensions between Russia and Ukraine continue to escalate further then EUR/GBP appears set to break below support at the 0.8300-level.”

See: EUR/GBP set to challenge the critical 0.83 support – ING

Oil trades comfortably above $90. Although the up move is showing signs of exhaustion, economists at Standard Chartered still expect oil prices to rise towards the $112-$115 region.

Short-term fatigue is setting in

“Negative momentum divergence (higher price associated with lower momentum readings) is a sign that the rally is showing signs of fatigue in the short-term.”

“Any potential consolidation may not be enough to derail the evolving medium-term uptrend. Oil appears to be on its way towards $112-$115.”

Military escalation has started in Eastern Ukraine. Strategists at Danske Bank now see a diminishing probability for a peaceful solution and raise the probability for a full-blown war. The latter would trigger a substantial fall in RUB, weaker EUR and weaker Scandies.

The threat of war is rising but diplomacy is still alive

“We now place a 50% probability of the conflict remaining contained in Eastern Ukraine but update our probabilities for other scenarios. We see a 30% probability of a large-scale Russian attack on Ukraine, including invasion of key cities like Kiev, and only a 20% probability of de-escalation as a result from a diplomatic deal.”

“As long as the military escalation remains contained in Eastern Ukraine, we see USD/RUB in 77-80 range in the short-term, but in case of a full-blown war, USD/RUB could go above 85.”

“In case of an escalation, we should expect to see markedly lower EUR/USD (e.g. 2-3 figs) and Brent above $100/barrel. In currencies, Scandies and Eastern Europe can drop 1-3% versus the EUR and equity markets can probably (initially) drop a few percent in the worst-case scenario.”

• AUD/USD attracted some dip-buying on Tuesday and turned positive for the second straight day.
• Rising bets for an eventual RBA rate hike turned out to be a key factor that underpinned the aussie.
• The risk-off mood kept a lid on any meaningful gains amid a goodish pickup in demand for the USD.

The AUD/USD pair retreated a few pips from the daily high and was last seen trading with modest gains, around the 0.7200 round-figure mark.

The pair attracted some dip-buying near the 0.7170 area on Tuesday and turned positive for the second successive day, though the risk-off mood capped gains for the perceived riskier aussie. The global risk sentiment took a hit amid a further escalation in tensions between Russia and the West over Ukraine.

Russian President Vladimir Putin formally recognised two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities and ordered troops to enter the area to maintain peace. This, in turn, fueled fears of a major war and triggered a fresh wave of the global risk-aversion trade.

The latest geopolitical developments might have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the anti-risk flow, led to a sharp decline in the US Treasury bond yields and kept a lid on any meaningful upside for the buck.

On the other hand, growing expectations for an eventual rate hike by the Reserve Bank of Australia (RBA) acted as a tailwind for the domestic currency. The fundamental backdrop supports prospects for additional gains for the AUD/USD pair, though the lack of follow-through buying warrants caution.

Market participants now look forward to the release of the US flash PMI prints later during the early North American session. The focus, however, will remain on developments surrounding the situation in Ukraine, which will influence the USD demand and provide some impetus to the AUD/USD pair.

Technical levels to watch

IFO Survey from Germany will be looked upon for fresh impetus in the European session but is set to have a limited impact on the euro as risk aversion takes over. Economists at ING expect the EUR/USD pair to extend its decline to the 1.1250/00 region.

German Ifo to have a negligible impact on the euro amid worsening external environment

“The German Ifo should have a contained market impact despite likely sending some encouraging signs on the recovery”.

“Market jitters caused by geopolitical tensions may well persist in the next few days and trigger an extension of the EUR/USD drop to the 1.1200-1.1250 area.”

EUR/USD has extended its slide pressured by risk aversion. As FXStreet’s Eren Sengezer notes, additional losses could be witnessed if buyers fail to defend 1.1280.

Risk aversion favours bears

“In case the market mood continues to sour, the shared currency could find it difficult to stay resilient against the dollar. As it currently stands, a de-escalation of the conflict looks unlikely, favouring the bears in the near-term.” 

“On the downside, 1.1280 (static level) aligns as key support. Below that level, the Fibonacci 61.8% retracement of the latest uptrend forms interim support at 1.1260 before the pair could target 1.1240 (static level).”

“Sellers are likely to move to the sidelines if the pair manages to reclaim the 1.1340/1.1350 area (Fibonacci 38.2%, 200-period SMA and 100-period SMA). 1.1400 (psychological level, Fibonacci 23.6% retracement of the latest uptrend) could be seen as the next resistance.”

EUR/GBP has been depreciating quite steadily as tensions in Ukraine have flared up. Economists at ING expect the pair to slide below the 0.8300 level today.

A historic break lower in EUR/GBP?

“Markets are likely estimating a greater fallout from a collapse in diplomatic relationships with Russia for the eurozone than for the UK. Accordingly, we would not be surprised to see EUR/GBP test the 0.8300 support as early as today: a break below this key level would bring the pair back to a range last seen in the aftermath of the June 2016 Brexit vote.”

“We think that GBP/USD remains quite exposed to the downside due to geopolitical tensions, and we expect a pull-back to 1.3500-1.3550 in the coming days unless we see a clear de-escalation.”

AUD/USD failed to hold on to gains above 0.7200 for the third consecutive session. Analysts at OCBC Bank expect the pair to drift lower towards initial support at 0.7150.

Not chasing higher

“The 0.7220/30 is turning out to be a strong resistance for now.”

“The turn of events reinforces the fluid nature of geopolitics and should leave one unconvinced of chasing AUD/USD upside in the near-term.”

“Immediate downside support at 0.7150, before 0.7080/00.”

GBP/USD has posted a recent high at 1.3644, rising from a late January 1.3358 low. Benjamin Wong, Strategist at DBS Bank, expects cable to extend its up move towards resistance around the 1.3830 region.

Bullish inverse-head-and-shoulders pattern spotted on the weekly charts

“The GBP Trade Weighted Index has broken higher above the 81.43 resistance marker – this should imply growing and widening GBP strength. Its real hurdle lies about 3.7% higher, around the 86.00 mark. This explains how GBP has stayed resilient since late January.” 

“On the weekly chart, GBP is fashioning a bullish inverted-head-and-shoulders pattern. Clearing 40-week moving average 1.3670 should fuel another rally where it should first eye resistance at 1.3834 and 1.3878. In that sense, it sets off a bullish trigger at 1.3749 that shifts the radar towards 1.3983, last July’s peak.”

USD/JPY fell to its weakest level in nearly three weeks at 114.53  before paring its losses and turning flat on the day near 114.80. Economists at OCBC Bank expect the pair to suffer further losses toward 114.20/00 in the coming sessions.

Near-term technicals still negative for USD/JPY

“Near-term technicals turned negative for the USD/JPY late last week, and have not seen any reprieve since.” 

“With tensions looking to escalate, do not rule out further dips towards 114.00/20 in the coming sessions.”

NZD/USD needs to clear 0.6735 to allow for extra gains in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Yesterday, we expected NZD to ‘consolidate and trade between 0.6670 and 0.6720’. However, NZD rose to 0.6735 before easing off to close little changed at 0.6701 (+0.08%). We expect NZD to trade sideways for today, likely between 0.6680 and 0.6725.”

Next 1-3 weeks: “Last Thursday (17 Feb, spot at 0.6690), we highlighted that risk has shifted to the upside and NZD could strengthen to 0.6735. NZD subsequently rose to 0.6730 before pulling back. Yesterday (21 Feb, spot at 0.6685), we highlighted while upward momentum has waned somewhat, there is still chance for AUD to push higher to 0.6735. NZD subsequently popped to a high of 0.6735 during early NY session before easing off. Despite the advance, upward momentum has not improved by much. 0.6735 is a solid resistance level and NZD has to close above this level before further advance is likely. On the downside, a breach of 0.6660 (‘strong support’ level was at 0.6645 yesterday) would indicate that the current upward pressure has eased.”

• EUR/USD extends the downside and retests the sub-1.1300 area.
• The dollar remains bid on increasing risk aversion following geopolitics.
• Germany IFO survey, US Consumer Confidence next of note in the docket.

The single currency remains at the mercy of the selling pressure, with EUR/USD breaking below the 1.1300 support to clinch new multi-day lows in the 1.1290/85 band.

EUR/USD weaker on USD-buying

EUR/USD loses ground for the fourth consecutive session on turnaround Tuesday, this time hurt by the increasing risk aversion mood that lends extra wings to the greenback.

Indeed, rising safe haven inflows underpins the demand for the dollar in response to the quick deterioration of the geopolitical scenario after Russian military prepare to move into the separatist provinces of Donetsk and Luhansk.

In the meantime, yields of the US 10y benchmark note grind lower following the prevailing risk-off sentiment vs. the small improvement in yields of the German 10y Bund.

Later in the domestic docket, the IFO Business Climate is due in Germany followed by final inflation figures in Italy. Across the Atlantic, housing data is due in the first turn followed by the CB’s Consumer Confidence and flash readings for the Manufacturing and Services PMIs.

What to look for around EUR

EUR/USD continues to look to the geopolitical scenario and the risk appetite trends for near-term direction. On this, further deterioration of the Russia-Ukraine front should keep the pair under pressure via a stronger dollar. In the meantime, 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. The threat to this view, as usual, comes from the Fed and a potential tighter-than-expected start of the normalization of its monetary conditions.

Key events in the euro area this week: Germany, EMU Flash PMIs (Monday) – Germany IFO survey (Tuesday) – Germany GfK Consumer Confidence, EMU Final January CPI (Wednesday) – Eurogroup Meeting, Germany Final Q4 GDP, EMU Final Consumer Confidence, ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, spot is losing 0.09% at 1.1297 and faces the next up barrier at 1.1395 (weekly high Feb.16) followed by 1.1487 (200-week SMA) and finally 1.1494 (2022 high Feb.10). On the other hand, a drop below 1.1287 (weekly low Feb.22) would target 1.1279 (weekly low Feb.14) en route to 1.1186 (monthly low Nov.24 2021).

The Reserve Bank of New Zealand (RBNZ) will hike rates by another 25bp on Wednesday and may upgrade the rate projections to signal six more back-to-back rate increases in 2022, in the view of economists at ING. They expect any FX impact to be overshadowed by geopolitics.

25bp hike, with many more to come

“We think that an upgrade in the rate path projections by the RBNZ, to signal six hikes (after the February one) in 2022, can help consolidate the market’s expectations on the Bank’s tightening plans and offer some short-term support to the NZD.”

“A highly volatile risk environment due to the geopolitical tensions in Ukraine and unstable equity markets means that any post-RBNZ reaction may be quickly overshadowed by external drivers.”

“Even if our expectations for a ‘hawkish hike’ (25bp) by the RBNZ prove correct, the market’s reluctance to price out geopolitical risk could result in NZD/USD struggling to move above 0.6750 this week, with risks skewed towards a pullback towards 0.6650 in the coming days.”

• USD/CAD climbed to a one-week high on Tuesday amid a goodish pickup in the USD demand.
• Escalating Russia-Ukraine tensions, the risk-off impulse benefitted the safe-haven greenback.
• Bullish crude oil prices underpinned the loonie and might cap any further gains for the major.

The USD/CAD pair traded with a mild positive bias through the early European session and was last seen trading near a one-week high, just above mid-1.2700s.

The pair edged higher during the early part of the trading on Tuesday amid a goodish pickup in demand for the US dollar, bolstered by the global flight to safety. The recent geopolitical developments triggered a fresh wave of the risk-aversion trade and forced investors to take refuge in traditional safe-haven assets.

In fact, Russian President Vladimir Putin formally recognised two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities and ordered troops to enter the area to maintain peace. This, in turn, fueled fears of a major conflict with the West and tempered investors' appetite for perceived riskier assets.

The White House, however, said that the move will not automatically trigger sanctions against Russia. Adding to this, the Russian envoy to the United Nations, Vasily Nebenzya, said during an emergency UN Security Council meeting that we remain open to a diplomatic solution and helped ease the market nervousness.

This, along with a sharp decline in the US Treasury bond yields, kept a lid on any further gains for the greenback. On the other hand, bullish crude oil prices extended some support to the commodity-linked loonie. The combination of factors might hold back bulls from placing aggressive bets and cap gains for the USD/CAD pair.

Even from a technical perspective, the pair has repeatedly failed to make it through the 1.2675-1.2685 strong resistance zone. This makes it prudent to wait for some follow-through buying beyond the said hurdle before confirming a near-term bullish bias and positioning for any further gains for the USD/CAD pair.

Market participants now look forward to the US economic docket, highlighting the release of flash PMI prints later during the early North American session. The focus, however, will remain on developments surrounding the situation in Ukraine. Apart from this, oil price dynamics should provide some impetus to the USD/CAD pair.

Technical levels to watch

"We are waking up to a dark day in Europe," British Health Secretary Sajid Javid said on Tuesday and added that it was clear Russian President Vladimir Putin had decided to attack the sovereignty of Ukraine, per Reuters.

Additional takeaways

"We can conclude invasion of Ukraine has begun."

"We will be introducing sanctions."

"Prime Minister Boris Johnson will make a statement to parliament today on Ukraine."

Market reaction

Safe-haven flows continue to dominate the financial markets after these comments and the GBP/USD pair was last seen trading in the negative territory near 1.3580.

Gold price pauses its bullish momentum just below June 2021 highs of $1,917. Acceptance above here is set to unleash further upside, FXStreet’s Dhwani Mehta reports.

Bullish potential remains intact

“The June 2021 highs of $1,917 remain on bulls’ sights, as a bull cross confirmation is likely to play out. If the risk-off-driven rally in gold price resumes, then bulls will retest the eight-month tops, above which the June 2021 highs will come into the picture. The next bullish target is aligned at $1,950, the psychological barrier.”

“Any retracement will look for support at the $1,900 threshold, below which the round level of $1,890 could be put to test. A firm break below the latter will open up the further downside towards Tuesday’s high of $1,880. The $1,850 support area will be back on sellers’ radars should the correction gather steam.”

See – Gold Price Forecast: XAU/USD finds support on a weaker USD, high inflation negates downside risks – ANZ

• EUR/JPY picks up bids to consolidate losses during four-day downtrend.
• Risk appetite remains weak as the West prepares sanctions for Russia.
• European stock futures contrast US counterpart to print mild gains, Bund yield stay firmer, Bond coupons drop.
• German IFO figures, risk catalysts to provide fresh impulse.

EUR/JPY pares intraday losses around 129.75, down 0.11% during the fourth consecutive daily fall heading into Tuesday’s European session.

The cross-currency pair dropped to refresh a two-week low during the Asian session amid risk-off mood. However, mixed headlines seemed to have triggered the quote’s recent corrective pullback.

Russian President Vladimir Putin’s signing of a decree "on friendship and cooperation" with Donetsk and Luhansk of Eastern Ukraine triggered the initial rush to risk-safety in the market. Moscow’s moves pushed global policymakers to believe in the Western warnings over the Russian invasion of Kyiv.

Following that, major policymakers, mainly from the UK, the US, Canada and Japan, raised concerns on the probable sanctions over Russia if it takes military actions against Ukraine.  On the same line, Reuters conveyed that the European Union (EU) sanctions package may include the key Nord Storm oil pipeline, as per Austria.

It should, however, be noted that the Russian Foreign Ministry mentioned that it stays open to talks and diplomacy, when asked about possible Lavrov-Blinken talks, which in turn might have triggered the recent consolidation in the market’s risk-aversion.

While portraying the mood, Euro Stoxx 50 rise 0.80% intraday while the S&P 500 Futures print over 1.5% daily loss at the latest. The same indecision could be witnessed while chasing yields on Bunds and Bonds as the former prints mild gains but the latter dropped six basis points by the press time.

Looking forward, German IFO sentiment data for January may entertain EUR/JPY traders but major attention will be given to the risk catalyst for clear directions.

Technical analysis

A clear downside break of the 100-DMA and 50-DMA, around 130.20-10 by the press time, directs EUR/JPY bears towards an upward sloping support line from December 20, 2021, near 128.80.

Russia's foreign ministry said on Tuesday that Moscow would need to first ratify the treaties with the breakaway regions of Ukraine before discussing their exact borders, Reuters reported citing the RIA news agency.

Meanwhile, regarding possible talks between US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov, "Russia is always open to talks and diplomacy, the ministry reiterated, per Ifax.

Market reaction

Markets remain risk-averse early Tuesday following these remarks As of writing, the US Dollar Index was posting small daily gains above 96.00 and the S&P Futures were down more than 2%. 

• GBP/JPY staged a goodish bounce from over a one-week low touched earlier this Tuesday.
• Receding safe-haven demand undermined the JPY and extended some support to the cross.
• Rising bets for more BoE rate hikes acted as a tailwind for sterling and remained supportive.

The GBP/JPY cross recovered over 50 pips from the Asian session low and was last seen trading in the neutral territory, around the 156.00 round-figure mark.

The cross witnessed some selling during the early part of the trading on Tuesday and dropped to a one-week low amid escalating geopolitical tensions, which tends to benefit the safe-haven Japanese yen. Russian President Vladimir Putin upped the ante in a crisis that could unleash a major war and recognized two Russian separatist-held regions - Donetsk and Luhansk - as independent. Putin later ordered to deploy troops into the area to maintain peace and fueled fears about a full-blown East-West conflict.

The development took its toll on the global risk sentiment and triggered a sharp decline in the equity markets, forcing investors to take refuge in traditional safe-haven assets. The nervousness, however, eased after the Russian envoy to the United Nations, Vasily Nebenzya, said during an emergency UN Security Council meeting that we remain open to a diplomatic solution. This, in turn, capped any further gains for the JPY, which assisted the GBP/JPY cross to find support and attract some dip-buying near mid-155.00s.

Apart from this, rising bets for additional interest rate hikes by the Bank of England acted as a tailwind for the British pound and further contributed to the GBP/JPY pair's bounce. It, however, remains to be seen if bulls are able to capitalize on the move amid intensifying Russia-Ukraine conflict. This, along with the lack of progress in talks to resolve the problems with the Northern Ireland protocol of the Brexit agreement, might hold back traders from placing aggressive bullish bets around the GBP/JPY cross.

There isn't any major market moving economic data due for release from the UK, leaving the GBP/JPY cross at the mercy of the broader market risk sentiment. Hence, the market focus will remain glued to developments surrounding the situation in Ukraine, which will play a key role in influencing the broader market risk sentiment. This, in turn, would drive demand for the safe-haven JPY and provide some meaningful impetus to the GBP/JPY cross.

Technical levels to watch

The upside momentum in GBP/USD appears to be losing traction, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected GBP to ‘consolidate and trade between 1.3560 and 1.3630’. GBP subsequently traded within a range of 1.3588/1.3639 before closing little changed at 1.3603 (+0.04%). Further consolidation appears likely even though the weakened underlying tone suggests a lower range of 1.3565/1.3630.”

Next 1-3 weeks: “Last Thursday (17 Feb, spot at 1.3585), we highlighted that GBP has to close above 1.3645 before a sustained advance is likely. As GBP struggled to move above 1.3645, we highlighted yesterday (21 Feb, spot at 1.3595) that the chance for GBP to move clearly above 1.3645 has diminished. GBP subsequently rose to 1.3639 before easing off. There is no change in our view for now but a breach of 1.3545 (no change in ‘strong support level) would indicate that the risk of a clear break of 1.3645 has dissipated.”

• DXY extends the upside momentum to the vicinity of 96.30.
• Risk-off sentiment sustains the better note in the dollar.
• Consumer Confidence, Flash PMIs, housing data next on tap.

The greenback, when tracked by the US Dollar Index (DXY), accelerates gains further north of the 96.00 mark on the back of persistent risk-off sentiment.

US Dollar Index stronger on geopolitics

The index advances for the fourth consecutive session on Tuesday supported by the deterioration of the geopolitical scenario after military escalation in Eastern Ukraine.

Indeed, safe haven inflows accelerated after Russia’s V.Putin announced he will recognize the independence of Donetsk and Luhansk amidst rising speculation of a definitive invasion of the country in the short term.

The safe haven appeal of the US dollar remains well and sound on the back of the strong resurgence of the risk aversion, always underpinned by increasing uncertainty surrounding the Russia-Ukraine military conflict.

In the US cash markets, yields in the short end of the curve advance modestly vs. the continuation of the downtrend in the belly and the long end, as US markets gradually return to normality following Monday’s President’s Day holiday.

In the US docket, the Conference Board will release the Consumer Confidence gauge for the month of February seconded by Markit’s Flash Manufacturing/Services PMIs. In addition, house prices will be in the limelight following the publication of the FHFA’s House Price Index and the S&P/Case-Shiller Index. Finally, the Richmond Fed Manufacturing Index will close the daily calendar.

What to look for around USD

Risk aversion kicked in and supported the dollar via increasing buying interest in the safe haven universe. The index therefore reclaimed the 96.00 mark and beyond following fresh developments from the Russia-Ukraine front and amidst the continuation of the corrective downtrend in US yields. Other than by risk-off sentiment, the constructive view on the dollar remains propped up by the current elevated inflation narrative as well as the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. 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: House Price Index, Flash Manufacturing PMI, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications (Wednesday) – Advanced Q4 GDP, Initial Claims, New Home Sales (Thursday) – PCE, Durable Goods Orders, Personal Income/Spending, Pending Home Sales, Final Consumer Sentiment (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 0.02% at 96.15 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).

Here is what you need to know on Tuesday, February 22:

Safe-haven flows started to dominate the financial markets late Monday after Kremin announced that Russian President Vladimir Putin would sign a decree to recognise the breakaway regions of Eastern Ukraine, Donetsk and Luhansk, as independent nations. Early Tuesday, risk-sensitive assets are struggling to find demand and the greenback stays resilient against its major rivals. IFO Survey from Germany will be looked upon for fresh impetus in the European session. In the second half of the day, Conference Board's Consumer Confidence Index and Markit PMIs will be featured in the US economic docket.

White House Principal Deputy National Security Adviser Jonathan Finer said that they were fully expecting Russia to take military action and added that the signs on the ground were not suggesting that Russia was looking for a diplomatic solution. Furthermore, a senior White House official said in a statement that the US will announce new sanctions against Russia on Tuesday in response to Moscow's "decisions and actions" on Monday. On the other hand, Russia's parliament will reportedly review friendship treaties with the territories on Tuesday.

Meanwhile, Russia's foreign ministry said early Tuesday that Russia was always open to talks and diplomacy but these comments don't seem to be helping the market mood improve. Reflecting the risk-averse market environment, the S&P Futures are down more than 2%, the 10-year US Treasury bond yield is losing 2% at 1.86% and the US Dollar Index is posting small daily gains above 96.00.

EUR/USD touched a fresh weekly low of 1.1288 in the late Asian session on Tuesday but managed to rebound to 1.1300 heading into the European session.

Gold regained its traction on the back of safe-haven flows and climbed to its highest level since June at $1,914. At the time of press, XAU/USD was clinging to modest daily gains near $1,910.

GBP/USD edged lower amid renewed dollar strength and declined below 1.3600 on Tuesday. Bank of England (BoE) Deputy Governor Dave Ramsden is scheduled to deliver a speech at 1045 GMT.

Crude oil prices surged higher on Monday and the barrel of West Texas Intermediate gained more than 2% to close the day near $94.00. Although WTI staged a correction early Tuesday, it continues to trade above $93.00.

USD/JPY fell to its weakest level in nearly three weeks at 114.53 during the Asian trading hours before paring its losses and turning flat on the day near 114.80 in the European morning.

Bitcoin stays on the back foot near $37,000 after suffering heavy losses on Monday. Ethereum is falling for the seventh straight day and trading at its lowest level since late January at $2,500.

• Palladium prices grind higher at three-week tops after bouncing off 21-DMA.
• Successful trading above the key DMAs join receding bearish bias of MACD to favor buyers.
• Descending trend line from August 2021 challenges buyers targeting fresh 2022 high.

Palladium (XPD/USD) extends the previous day’s U-turn from 21-DMA to refresh a three-week high of around $2,390 during early Tuesday morning in Europe.

In addition to the successful rebound from the 21-DMA, the bullion’s ability to provide a daily closing beyond the 61.8% Fibonacci retracement (Fibo.) of July-December 2021 downside, near $2,370, also keep XPD/USD bulls hopeful.

On the same line is the recently recovering MACD line that tease the palladium buyers.

However, a downward sloping resistance line from August 2021, near $2,405, becomes the key hurdle for the metal buyers to cross before challenging the year 2022 peak of $2,415. Following that, the August 2021 high near $2,470 will act as the last defense for bears.

Meanwhile, pullback moves remain elusive beyond the aforementioned Fibo. level around $2,370.

Even if the XPD/USD bears manage to conquer the $2,370 immediate support, the 21-DMA and 50% Fibonacci retracement, respectively around $2,310 and $2,215, will challenge them.

Also acting as important support is the 200-DMA level of $2,165.

Palladium: Daily chart

Trend: Further upside expected

• AUD/JPY has rebounded from 82.12, which has turned into a fakeout.
• The RSI (14) indicates that the asset is back into the woods but with a bullish bias.
• Bulls need to surpass 50-EMA decisively to gain strength.

The AUD/JPY has witnessed a rebound from Tuesday’s low at 82.12. In the early Asian session, the cross has observed follow-up buying after slipping below the same lows of Monday and Thursday’s trading sessions around 82.34.

On an hourly scale, AUD/JPY has been trading in a range of 82.33-83.34 since Thursday. The cross has tried to augment the range breakout by slipping below 82.33 in the early Asian session. However, the asset has attracted significant bids later and a follow-up buying has turned the breakout into a fakeout.

Usually, a fakeout seems more decisive and confident to breach the range on the opposite side. This may underpin bulls for further upside ahead.

The 50-period and 200-period Exponential Moving Averages (EMA) are trading flat, showing no signs of a clear bull ride yet.

While, the Relative Strength Index (RSI) (14) has reclaimed its previous oscillating range of 40.00-60.00, which indicates that the asset is back into the woods but with a bullish bias.

Now, bulls are eyeing the 50- EMA, which is trading at 82.70. After surpassing the 50-EMA, AUD/JPY may rally towards Monday’s high at 83.05 and Friday’s high at 83.33 respectively.

On the flip side, bulls could lose their grip if the cross slips below 82.33 and additional losses could be witnessed toward Tuesday’s low at 82.12 ahead of February 15 low at 81.90.

AUD/JPY hourly chart

• GBP/USD bounces off intraday low, pokes upper end of the short-term trading range.
• EU’s Sefcovic pours cold water on hopes of Brexit breakthrough, UK Treasury plans post Brexit overhaul of insurance industry.
• UK, US braces for fresh sanctions on Russia as it moves troops closer to Donetsk and Luhansk.
• UK PMIs propelled bets of BOE rate hike in March, US PMIs for February eyed amid recently easy Fedspeak.

GBP/USD picks up bids to consolidate intraday losses around 1.3600 as cable traders await Tuesday’s London open.

The pair began the week on a positive side as firmer UK PMIs favored hawks at the Bank of England (BOE). Though, the risk-aversion wave offered a positive week-start to the USD bulls and weighed on the quote during the early Asian session.

The preliminary readings of the UK’s February month Manufacturing and Services PMIs rose past market consensus during the latest readings. However, the UK Express quotes European Commission's Brexit point person Maroš Šefčovič while portraying the challenges for the GBP/USD and probed the bulls afterward. The news reads, “Maros Sefcovic has wrecked hopes of an EU breakthrough after high-stakes talks with Britain's chief Brexit negotiator, Liz Truss, in Brussels today (Monday).” Also concerning Brexit is The Guardian’s news saying, “The Treasury has announced plans to unlock more than £10bn of UK infrastructure investment through a post-Brexit overhaul of the insurance industry.”

On the other hand, the US Dollar Index (DXY) prints a four-day uptrend near 96.15 amid the market’s risk-off mood. Sentiment soured on escalating fears of an imminent Russian invasion of Ukraine, as previously warned by the West.

The United Nations (UN) recently called an emergency meeting wherein Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported 'peacekeeping mission'. Adding to the market fears were Western leaders’ readiness to announce more sanctions for Russia.

Amid these plays, stock futures in the US and Europe remain downbeat whereas the US Treasury yields also dropped seven basis points (bps) to 1.85% at the latest.

Moving on, Brexit headlines will join geopolitics to direct short-term GBP/USD moves. Also important will be the first readings of the US Markit PMIs for February amid recently softer Fedspeak. On Monday, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

Technical analysis

GBP/USD remains inside the 1.3645 and 1.3555 area since early February. However, bullish MACD conditions join firmer USD, amid risk-off mood, to keep buyers hopeful.

FX Strategists at UOB Group noted EUR/USD could extend the downside to the 1.1280 region in the next weeks.

Key Quotes

24-hour view: “Yesterday, we held the view that ‘there is room for EUR to test the strong support at 1.1300’. However, it rebounded to 1.1390, dropped back down to 1.1305 before dipping below 1.1300 after NY close. Downward momentum is building rapidly and EUR could drop below 1.1280. The next support at 1.1240 is likely out of reach. Resistance is at 1.1325 followed by 1.1345.”

Next 1-3 weeks: “We highlighted yesterday (21 Feb, spot at 1.1315) that downward momentum is beginning to build again and EUR could head lower to 1.1280. We added, in order to maintain the build-up in momentum, EUR has to stay below the ‘strong resistance’ level at 1.1400. EUR subsequently rebounded to 1.1390 before dropping back down to close at 1.1310 (-0.10%). There is no change in our view and a clear break of 1.1280 would shift the focus to 1.1240. On the upside, a breach of the 1.1375 (‘strong resistance’ level was at 1.1400) would indicate that the overall downside risk that started more than a week ago has come to an end.”

• Gold price remains underpinned by geopolitics, as Russia-Ukraine risks escalate.
• Thursday’s G7 meeting offers some optimism but risk sentiment remains sour.
• Gold Price Forecast: Acceptance above $1,917 to unleash further upside, Ukraine in focus.

Gold price continues to draw the safe-haven bids on escalating geopolitical tensions after Russian President Vladimir Putin’s decision to officially recognize two self-proclaimed separatist republics in eastern Ukraine. The US and its allies condemned the Russian move at the United Nations (UN) Security Council’s emergency meeting, as the White House has prepared a set of sanctions to be imposed on Russia. Some market participants still see a ray of hope for de-escalation, as they look forward to Thursday’s G7 meeting on the Ukraine crisis.

Read: Markets brace for heavy falls as Russia-Ukraine crisis escalates

Gold Price: Key levels to watch

The Technical Confluences Detector shows that gold price is challenging key resistance at $1,909, which is the Bollinger Band one-day Upper.

A sustained move above the latter will bring the pivot point one-day R1 at $1,913 into play, above which the eight-month highs of $1,917 will be challenged.

Acceptance above the latter will trigger a fresh upswing towards $1,919, the pivot point one-week R1. Further up, the pivot point one-day R2 at $,1921 will test the bearish commitments.

Alternatively, if the corrective pullback resumes, then the previous week’s high of $1,903 is likely to be threatened.

The next relevant support is envisioned at the confluence of the Fibonacci 161.8% one-month and the SMA10 four-hour.

The Fibonacci 61.8% one-day at $1,896 will then come to the rescue of gold optimists.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• NZD/USD looks firmer around 0.6720 ahead of Wednesday's RBNZ’s MPC meeting.
• The kiwi has outperformed the greenback despite the geopolitical jitters.
• The Fed may resort to a 25 bps hike amid tensions between Russia and Ukraine.

The NZD/USD pair has witnessed some significant bids on Tuesday around 0.6680, despite the geopolitical jitters amid Russia and Ukraine. At the time of writing, the major is juggling near 0.6710 but is likely to extend gains further towards 0.6750 on a 25 basis points rate hike expectation by the Reserve Bank of New Zealand (RBNZ) in their monetary policy statement on Wednesday.

It is worth noting that the RBNZ has increased its interest rates by 0.75% in the last six months. And, New Zealand’s central bank is upfront with one more hike for Tuesday as per the market consensus.  The latest print of kiwi’s inflation at 5.9% is significantly higher than the average range of 1-3% in the last two decades. To combat the ramping-up inflation, the RBNZ needs to bank upon interest rate hikes despite the rising geopolitical tensions, which has jeopardized the decision-making for various central banks.

Russia's recognition of two of Ukraine's eastern regions: Donetsk and Luhansk as ‘independent’ has spooked the market sentiment. Global markets are plunging and risk-sensitive assets are not finding any ground. Despite a highly uncertain market, the kiwi is outperforming against the greenback since the first tick of the Asian session.

The US dollar index (DXY) retreats from Tuesday’s high at 96.24, as investors believe that the Federal Reserve (Fed) may not approach a tightening monetary policy, keeping in mind that geopolitical tensions between Russia and Ukraine can pose serious threats to the global economy. However, the upside in the index is still intact.

NZD/USD technical levels to watch

• USD/CHF remains pressured around monthly low after declining the most in three weeks.
• Bearish MACD signals, sustained trading below the key DMAs keep sellers hopeful.
• Sellers can aim for ascending support line from June 2021 on breaking 0.9155.

USD/CHF holds onto the previous day’s bearish bias around 0.9160-55 heading into Tuesday’s European session.

The Swiss currency (CHF) pair dropped the most in three weeks on Monday amid a broad risk-off mood. However, an upward sloping trend line from January 13 restricts the quote’s immediate downside near 0.9155.

It should be noted, however, that the bearish MACD signals join the pair’s successful trading below the 50-DMA and 200-DMA, to favor sellers targeting an eight-month-old support line near 0.9120.

In a case where USD/CHF drops below 0.9120, the 2022 bottom surrounding 0.9090 will be in focus.

On the flip side, corrective pullback needs validation from the 200-DMA level of 0.9180 before directing buyers towards the 50-DMA, close to 0.9200 by the press time.

Should USD/CHF rally beyond 0.9200, a downward sloping resistance line from January 31, around 0.9250, may lure the pair buyers.

USD/CHF: Daily chart

Trend: Further weakness expected

• EUR/USD drops for the fourth consecutive day as sellers poke one-week low.
• Risk-aversion wave drowns stock futures, yields, tradition safe-haven status favor USD, gold.
• Eurozone PMIs rallied to five-month high in February but absence of US traders, sour sentiment keep pair bears in control.
• February’s preliminary activity numbers from US will join risk catalysts to direct intraday moves.

EUR/USD licks its wounds around the weekly low of 1.1288 during the four-day downtrend ahead of Tuesday’s European session. In doing so, the major currency pair relies on the US dollar’s safe-haven demand to please bears with mild gains as geopolitical headlines concerning Russia-Ukraine get tense.

Risk appetite soured late Monday after Russian President Vladimir Putin declared Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree "on friendship and cooperation". Adding to the risk-off mood was Putin’s order to bring troops inside Eastern Ukrainian states, citing peacemaking efforts.

These actions magnified fears of an imminent Russian invasion of Ukraine, as previously warned by the West. As a result, the United Nations (UN) recently called an emergency meeting wherein Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported 'peacekeeping mission'.

Adding to the market fears were Western leaders’ readiness to announce more sanctions for Russia. However, Moscow defends the latest military move as Russian UN Envoy said, “Allowing 'a new bloodbath in the Donbas is something we do not intend to do.'” On the same line were comments from China’s UN Ambassador who said, “All parties concerned must exercise restraint, avoid any action that might fuel tensions.”

Additionally, China’s indirect warning to the US to stay from Taiwan issues and recently softer Fedspeak, as well as hawkish ECB wordings, also challenge the EUR/USD traders ahead of full markets.

To portray the mood, S&P 500 Futures dropped over 1.60% whereas the US 10-year Treasury yields declined seven basis points (bps) to 1.85% at the latest.

It should be noted that Eurozone activity numbers improved in February, validating the recently upbeat comments from the policymakers. However, today’s German IFO numbers may add support to the bullish arguments and can challenge EUR/USD sellers. Elsewhere, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams on Monday while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

To sum up, the risk-off mood and likely firmer US PMIs for February do suggest that the EUR/USD bears can keep the reins.

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

The pair’s downside break of the 200-SMA and an upward sloping trend line from January 28 joins bearish MACD signals and descending RSI, not oversold, to keep EUR/USD sellers hopeful. However, a clear downside break of the 13-day-long support line near 1.1290 becomes necessary for the pair sellers before targeting the 61.8% Fibonacci retracement (Fibo.) of January-February upside, around 1.1265.

Alternatively, 200-SMA and the previous support line guards immediate recovery moves of the EUR/USD prices around 1.1345-50. Also challenging the pair buyers is a descending trend line from January 11, near 1.1375, as well as the 1.1400.

• AUD/USD finds barricades near 0.7200 as the Russia-Ukraine fears escalate.
• The statements from the UN’s emergency meeting will keep investors on their toes.
• Asian markets are going through a bloodbath as the geopolitical situation worsens.

The AUD/USD pair has rebounded from Tuesday’s low at 0.7172 but finds barricades near 0.7200, as the emergency meeting by the United Nations (UN) adds fuel to an already highly uncertain environment. The escalation of geopolitical tensions between Russia and Ukraine has brought a bloodbath in the Asian markets, weighing down on the risk-sensitive antipodeans.  

As the UN Security Council emergency meeting undergoes, the Russian ambassador said, “allowing 'a new bloodbath in the Donbass is something we do not intend to do.” While, Ukraine is not convinced with the assurance from the Kremlin statements and reiterates that, “its border will remain unchanged regardless of Russian announcements,”

Till then, the emergency meeting by the UN will not reach a principal outcome; the risk-sensitive assets will continue to remain in the grip of bears.

The unavailability of any trigger in Tuesday's speech from the Reserve Bank of Australia (RBA)’s Christopher Kent has also failed to support the aussie against the greenback.

Meanwhile, Australia pulls diplomats out of Ukraine on rising expectations of imminent strikes between Russia and Ukraine. Adding to that, the Australian administration has urged Australians to leave Ukraine.

The US dollar index (DXY) is comfortable trading above 96.00, around 96.20. The DXY is moving north backed by the ample volatility in the market, which has squeezed the risk appetite of the investors dramatically.

AUD/USD will dance to the tunes of the Russia-Ukraine headlines further. However, the US Consumer Confidence print and Markit PMI Composite figures on Tuesday will be keenly watched. While the Australian docket will report quarterly and yearly Wage Price Index (WPI) numbers on Wednesday.

Senior Chinese diplomat Wang Yi said, per Reuters, “Attempt to include Taiwan in its Indo-Pacific strategy is sending wrong signal of trying to contain China.”

Mre to come

• USD/CAD prints four-day uptrend to refresh one-week high, sidelined of late.
• Market sentiment remains sour on Russia-Ukraine headlines, WTI struggles to keep gains around multi-day peak.
• US, Canadian traders’ return, economic data will offer fresh impulse.
• Fedspeak, geopolitical updates are more important for clear directions.

USD/CAD pares intraday gains around the highest levels in one week, recently easing to 1.2760 after a four-day uptrend. Even so, the Loonie pair remains firmer as the market’s risk-off mood joins steady prices of Canada’s main export item, WTI crude oil, during early Tuesday.

Underneath the quote’s mildly positive conditions are the US dollar’s safe-haven demand during the risk-aversion wave. Market sentiment soured of late amid after Russian President Vladimir Putin ordered troops inside Eastern Ukrainian states, citing peacemaking efforts. Previously, Russian President Putin declared Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree "on friendship and cooperation".

The news backed the previous Western warnings over the Russian invasion of Ukraine, which in turn pushed the United Nations (UN) to call an emergency meeting. During the meet, Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported 'peacekeeping mission'.

It’s worth noting that the UK, the US and Canada showed readiness to announce fresh economic sanctions on Moscow. Further, Japan Yomiuri mentioned Japan’s warning to stop the chip exports to Moscow if it invades Ukraine whereas Australia PM Scott Morrison said that they will be in lockstep with allies on sanctions on Russia.

To defend the moves of Russian President Putin, Moscow’s UN Envoy said, “Allowing 'a new bloodbath in the Donbas is something we do not intend to do.'” On the same line were comments from China’s UN Ambassador who said, “All parties concerned must exercise restraint, avoid any action that might fuel tensions.”

Other than the Russia-Ukraine standoff, China’s banning of poultry, poultry products from Canada joins recently softer Fedspeak to weigh on market sentiment and propel USD/CAD moves. Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams on Monday while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

Elsewhere, WTI crude oil initially refreshed weekly top to $93.65 before retreating to $92.50. In doing so, the black gold remains mostly unchanged around the highest levels in the eight-year, flashed in the last week.

Amid these plays, S&P 500 Futures dropped over 1.60% whereas the US 10-year Treasury yields declined seven basis points (bps) to 1.85% at the latest.

As traders from the US and Canada return from a long weekend, their reaction to the latest macros will be crucial for USD/CAD moves. Also important will be Canada’s ADP Employment Change for January as well as the preliminary readings of the US PMIs for February.

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

A six-week-old triangle restricts short-term USD/CAD moves between 1.2780 and 1.2730. However, bullish MACD and firmer RSI keep buyers hopeful.

• USD/INR pares intraday losses after bouncing off monthly low the previous day.
• 100-SMA, weekly resistance line guard recovery moves, previous support add to the upside filters.
• 61.8% Fibonacci retracement level offers strong support below 200-SMA.

USD/INR struggles to keep the bounce off the 200-SMA, around 74.77, down 0.15% on a day during Tuesday’s Asian session.

The Indian rupee (INR) pair dropped to the lowest since January 24 on Monday before stepping back from a convergence of the 100-SMA and one-week-old descending trend line near 74.95.

That said, the latest rebound from the 200-SMA level near 74.65 gains support from the firmer MACD and RSI. However, a clear upside break of the 74.95 becomes necessary to challenge USD/INR bears.

Even so, the support-turned-resistance from January 12, close to 75.08-10, will probe the pair buyers before giving them controls to aim for January’s peak of 75.34.

During the USD/INR run-up beyond 75.34, the monthly high of 75.70 will be in focus.

On the contrary, 200-SMA and 61.8% Fibonacci retracement (Fibo.) of January-February upside, respectively around 74.67 and 74.48, will test short-term USD/INR bears.

In a case where the Indian rupee bulls dominate past 74.48, the 74.00 threshold may offer an intermediate halt during the pair’s south-run targeting the previous month’s trough surrounding 73.72.

USD/INR: Four-hour chart

Trend: Further weakness expected

• WTI turns volatile but set to move higher on the expectations of cuts in global oil supply.
• The emergency meeting by the UN has spurted uncertainty in the market.
• The US is set to impose sanctions on Russia after coordinating with allies on Tuesday.

West Texas Intermediate (WTI), futures on NYMEX, is holding above $92.00 in the Asian session, as the tensions between Russia and Ukraine escalates. The statement from the United Nations (UN) Security Council that ‘risk of major conflict is real and needs to be prevented at all costs' has cleared the obscurity over Russia’s plan to invade Ukraine. The major agenda behind calling for an emergency meeting by the UN is to discuss the Russian government’s labeling for two regions in eastern Ukraine ‘independent’.

Earlier, Russian leader Vladimir Putin recognized two separatist regions in eastern Ukraine, Donetsk and Luhansk, as ‘independent’.  Moreover, Russia is supported by separatist leaders to build up military bases in these regions.

The news has created havoc in the Asian markets. Crude oil has turned volatile, hovering around $92.60 but is likely to resume moving higher soon as sanctions from various Western leaders are on the cards.  Imposing sanctions on Russia by the Western leaders may dampen the already vulnerable oil market further. The tightening of the oil supply will affect the global operating activities. Adding to that, a senior White House official said in a statement, the US will announce sanctions against Russia on Tuesday in response to Moscow's actions on Monday.

Meanwhile, the US dollar index (DXY) has surpassed 96.00 as the risk-aversion theme has underpinned the greenback's safe-haven appeal.

• GBP/USD slides in midday Asia as markets stay in risk-off mode.
• The Ukraine crisis is in the driving seat while traders await key MPC speakers.

GBP/USD is under pressure at 1.3585 after ranging from a high of 1.3601 to a low of 1.3580. The markets are focussed on the latest moves from the Kremlin with the Russian president, Vladimir Putin, who on Monday signed a decree that recognises Donetsk and Luhansk in Eastern Ukraine as independent states.

Additionally, Putin ordered troops to move into the region on a peacemaking patrol. The US expects Russian troops could move into the Donbas region of Ukraine as soon as Monday evening or Tuesday eastern time. In response to the Kremlin's actions today, the West is promising to respond with sanctions.

The US President Joe Biden has already signed an executive order Monday imposing sanctions that target two Russia-backed breakaway republics in eastern Ukraine. Meanwhile, the UK confirmed it will be announcing Russia sanctions tomorrow in response to Putin's declaration. The Guardian also reported that the UK government said sanctions are expected to go further if invasion happens, so they won’t go as far as full package prepared yet.

MPC speakers eyed

Meanwhile, for the week ahead, there will be both BoE and Fed speakers. ''With 6 speakers scheduled, the MPC will have plenty of opportunities to push back on aggressive market pricing ahead of its March meeting,'' analysts at TD Securities explained.

''While markets are betting on a 50bps hike, we think the MPC is more likely to stick to 25bps increments. Wed is TSC, and Thurs/Fri sees 3 MPC members speak at the BoE's "Unwinding QE" conference, which could provide early hints on QT plans.''

• Gold seesaws around June 2021 high after refreshing multi-day top.
• Fears of Russian invasion amplify as ‘peacemaking’ troops move closer to Donetsk and Luhansk.
• West readies fresh sanctions on Moscow, China’s UN Ambassador tries to placate tensions. 
• Gold Price Forecast: Bulls hesitate at around $1,900 but are still in control

Gold (XAU/USD) prices grind higher, after refreshing the eight-month top near $1,914 during the late Asian session on Tuesday. The bullion buyers have been cheering the rush to risk-safety since late January, mainly due to inflation fears and geopolitical concerns surrounding Russia and Ukraine.

Recently fueling the quote were headlines backing the previous Western warnings over the Russian invasion of Ukraine. Market sentiment roiled after Russian President Vladimir Putin ordered troops inside Eastern Ukrainian states, citing peacemaking efforts. Previously, Russian President Putin declared Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree "on friendship and cooperation".

In a reaction to the sudden jump in geopolitical fears, the United Nations (UN) called an emergency meeting. During the meet, Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported 'peacekeeping mission'.

Elsewhere, the UK, the US and Canada showed readiness to announce fresh economic sanctions on Moscow. Further, Japan Yomiuri mentioned Japan’s warning to stop the chip exports to Moscow if it invades Ukraine whereas Australia PM Scott Morrison said that they will be in lockstep with allies on sanctions on Russia.

On the contrary, Russia’s UN Envoy said, “Allowing 'a new bloodbath in the Donbas is something we do not intend to do.'” On the same line were comments from China’s UN Ambassador who said, “All parties concerned must exercise restraint, avoid any action that might fuel tensions.”

Against this backdrop, S&P 500 Futures dropped over 1.80% whereas the US 10-year Treasury yields declined seven basis points (bps) to 1.85% by the press time.

In addition to the Russia-linked risk-off mood, recently softer Fedspeak also allowed gold prices to remain firmer. On Monday, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

That said, the risk catalysts are crucial for short-term gold moves while the preliminary US PMIs for February will also be important to watch amid the recent softening of Fedspeak.

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

Gold seesaws around the fresh eight-month high as bulls flirt with the $1,910-15 region, following a sober Monday that tested the previous three-week uptrend.

The yellow metal crossed the key horizontal hurdle surrounding $1,877 and extended the run-up beyond an upward sloping resistance line from January 20, now support around $1887 during the last week.

Gold: Four-hour chart

However, overbought RSI and a descending trend line from September 2020, around $1,914 by the press time, challenges the quote’s further upside.

In a case where the bullion prices rise past-$1,914, the year 2021 high surrounding $1,960 will be on the gold buyer’s radar.

Meanwhile, pullback moves may initially aim for the resistance-turned-support line around $1,887 before testing the aforementioned horizontal support close to $1,877.

Adding to the downside filter is a 12-day-long rising trend line close to $1,865.

Overall, gold prices may witness a pullback before rallying further. Though, buyers should remain hopeful beyond $1,865.

Gold: Daily chart

Trend: Pullback expected

• Global stocks sinking as Ukraine crisis deepens in the latest moves from the Kremlin.
• Western nations will retaliate with sanctions over Russia.

Global stocks are under pressure again following Russian President Vladimir Putin ordering troops into breakaway regions of eastern Ukraine. As the conflict over Ukraine appeared to worsen, US equities futures and European stocks lost further ground with the Stoxx Europe 600 index having dropped to its lowest point since October. Futures on 10-year US Treasury notes increased, also representing investors' appetite for safe havens.

S&P 500 futures lost 1.5%, Nasdaq futures fell 2.2%. The MSCI's broadest index of Asia Pacific shares outside Japan fell 1.44%, pulled lower by markets in Hong Kong and mainland China. Japan's Nikkei (NI225) shed 2%. 

Vladimir Putin signed a decree that recognises Donetsk and Luhansk in Eastern Ukraine as independent states. Additionally, Putin ordered troops to move into the region on a peacemaking patrol. The US expects Russian troops could move into the Donbas region of Ukraine as soon as Monday evening or Tuesday eastern time.

In response to the Kremlin's actions today, the West is promising to respond with sanctions. US President Biden signed an executive order Monday imposing sanctions that target two Russia-backed breakaway republics in eastern Ukraine.

The Russian ambassador to the UN said at the Security Council emergency meeting, “allowing 'a new bloodbath in the Donbass is something we do not intend to do.”

Meanwhile, China's UN ambassador said, “all parties concerned must exercise restraint, avoid any action that might fuel tensions.”

White House: Will announce new sanctions on Russia on Tuesday, will coordinate with allies

more to come ....

• EUR/JPY is under pressure as traders await developments to unfold over the Ukraine crisis. 
• Risk-off is supporting the yen, sinking global stocks.
• Vladimir Putin signed a decree that recognises independent Ukraine states.

EUR/JPY is trading flat on the session within the 129.36 and 129.90 range. The growing concerns about the Russia-Ukraine tensions have helped support the yen at the start of the week across the currency board. Risk-off was kicked off by the Kremlin saying that there were no concrete plans for a summit over Ukraine between the Russian and US presidents.

Vladimir Putin signed a decree that recognises Donetsk and Luhansk in Eastern Ukraine as independent states. Additionally, Putin ordered troops to move into the region on a peacemaking patrol. The US expects Russian troops could move into the Donbas region of Ukraine as soon as Monday evening or Tuesday eastern time.

Meanwhile, an emergency UN Council meeting on Ukraine, chaired by Russia, which currently holds the presidency of the Council is underway. Nation members support a clear and unequivocal response to Russia's provocation, urging Russia to withdraw from the regions it now recognises as independent and to return to a discussion within the Normandy format.   

In response to the Kremlin's actions today, the West is promising to respond with sanctions. US President Biden signed an executive order Monday imposing sanctions that target two Russia-backed breakaway republics in eastern Ukraine.

''The order bars "new investment, trade and financing by US persons to, from, or in" the so-called Donetsk People's Republic and Luhansk People's Republic, located in Ukraine's eastern Donbas region, White House press secretary Jen Psaki said in a statement,'' CBS News reported. 

NATO and European officials also condemned Putin's actions in statements. NATO Secretary-General Jens Stoltenberg said the move "further undermines" Ukraine's sovereignty and territorial integrity.

"I condemn Russia's decision to extend recognition to the self-proclaimed 'Donetsk People's Republic' and 'Luhansk People's Republic,'" he said.

"This further undermines Ukraine's sovereignty and territorial integrity, erodes efforts towards a resolution of the conflict, and violates the Minsk Agreements, to which Russia is a party."

British Prime Minister Boris Johnson spoke out on the mater on Monday and said that Putin's recognition of the separatist regions was an "ill omen and a very dark sign." The UK plans to announce new sanctions on Russia on Tuesday, UK Foreign Secretary Liz Truss said on Twitter.

As the conflict over Ukraine appeared to worsen, US equities futures and European stocks fell with the Stoxx Europe 600 index has dropped to its lowest point since October. Futures on 10-year US Treasury notes increased, also representing investors' appetite for safe havens.

China's Finance Minister Liu Kun said on Tuesday that Beijing “will strengthen cooperation between fiscal and monetary policy.”

Additional takeaways

“Will implement greater tax and fee cuts this year.“

“Will step up central govt's transfer payments to local governments this year.”

“2022 transfer payments will help offset impact from tax cuts on local revenues.”

Market reaction

USD/CNY is off the multi-day highs of 6.3430, still up 0.08% at 6.3405, as of writing.

US ambassador to the UN, Linda Thomas-Greenfield, warned: “the consequences of Russia's actions will be dire -- across Ukraine, Europe and the globe.”

Further comments

Watch: UN Security Council emergency meeting on Russia’s move underway – Live stream

The United Nations (UN) Security Council emergency meeting is now underway to discuss the Russian government’s recognition of two separatist regions in eastern Ukraine and its order to deploy Russian troops to them.

UN Under-Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported 'peacekeeping mission'.

Additional quotes

more to come ...

Watch the live stream here

Market reaction

Gold price is keeping its range around $1,910, holding gains amid a 0.30% drop in the S&P 500 futures, as investors remain on the edge amid the Ukraine crisis.

• USD/JPY bounces off multi-day low as bears take a breather amid Russia-linked fears.
• US 10-year Treasury yields print five-day downtrend, S&P 500 Futures drop over 1.5%.
• Japan FinMin Suzuki shows readiness to coordinate with G7 in dealing with Ukraine.
• Japan Corporate Service Price Index rose 1.2% in January, US PMIs will decorate calendar.

USD/JPY pares intraday losses around the lowest levels since February 03, recently bouncing off the multi-day bottom to 114.70 during Tuesday’s mid-Asian session.

Despite the yen pair’s latest corrective pullback, the market’s risk-off mood underpins the safe-haven demand of the USD/JPY.

While portraying the mood, S&P 500 Futures drop over 1.5% whereas the US 10-year Treasury yields decline six basis points (bps) to 1.87% by the press time. Further, stocks in Asia-Pacific also portray daily losses amid broad risk-aversion.

Behind the moves are the escalating fears of the Russian invasion of Ukraine as troops from Moscow move closer to borders after President Vladimir Putin called them to mark peacemaking efforts. The move was the second blow to the market sentiment after Russian President Putin declared Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree "on friendship and cooperation".

Following that, the Western warnings of Moscow’s readiness for an imminent invasion of Ukraine gained more accolades and spoil the mood. Also negative for the risk appetite are the latest hints by the US, EU, Canada and the UK to criticize the Russian actions.

Additionally, Yomiuri mentioned Japan’s warning to stop the chip exports to Moscow if it invades Ukraine whereas Australia PM Scott Morrison said that they will be in lockstep with allies on sanctions on Russia. It’s worth noting that Japan’s Finance Minister (FinMin) Shunichi Suzuki said Tokyo will coordinate with the Group of Seven (G7) nations in dealing with Ukraine.

Talking about economics, Japan’s Corporate Service Price Index rose 1.2% in January, versus 0.7% forecast and 1.1% expected. On the other hand, holidays in the US and Canada offered a dull start to the week, despite the broad risk-off mood. Though, today’s preliminary readings of February PMIs for the US will be crucial considering the recently softer Fedspeak. That said, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams on Monday while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

USD/JPY pokes a five-month-old support line near 114.50 as bearish MACD signals and a clear downside break of the 50-DMA, around 114.85 by the press time, favor sellers.

Japanese Finance Minister Shunichi Suzuki said in a statement on Tuesday, his country “will coordinate with G7 in dealing with Ukraine situation.”

Additional quotes

“Closely watching impact from western countries' interest rates could have on Japan’s economy.”

“Closely watching how Ukraine situation could affect Japan’s economy.”

Market reaction

At the time of writing, USD/JPY is holding the lower ground near 114.70, modestly flat on the day.

• EUR/USD is on the back foot as traders await further developments to unfold amid the Ukraine crisis. 
• Federal Reserve sentiment is also contributing to a firmer US dollar. 

EUR/USD is trading flat in the session but is subject to volatility in financial markets pertaining to the escalations of the Ukraine crisis. The single currency has travelled from a high of 1.1319 to a low of 1.1296, weighed by risk-off tones following critical developments at the Kremlin.

Russian President Vladimir Putin recognised two breakaway regions in eastern Ukraine as independent on Monday and ordered the Russian Army to launch what Moscow called a peacekeeping operation into the area, accelerating a crisis the West fears could unleash a major war, Reuters reported. 

In response, Western nations will invoke sanctions on Russia for which US President Joe Biden has already signed an executive order to prohibit trade and investment between US individuals and the two breakaway regions of eastern Ukraine, the White House said.

Markets are now awaiting an emergency UN Council meeting on the Ukraine crisis that will start in about 20 minutes and will be chaired by Russia, which currently holds the presidency of the Council.

As the conflict over Ukraine appeared to worsen, US equities futures and European stocks fell with the Stoxx Europe 600 index has dropped to its lowest point since October. Futures on 10-year US Treasury notes increased, also representing investors' appetite for safe havens.

Besides the flare-up of geopolitics, on Monday, Fed's Bowman backed an interest-rate hike in March, arguing that while it was too early to determine whether the rise should be 50 basis-points, the topic was on the table for officials to debate. This comes before data that will likely show the Fed's key inflation index has jumped to a new four-decade high in January, bolstering the case for higher rates.

“All State Dept personnel are out of Ukraine now, relocated to a hotel in Poland, I’m told. The US alerted high-ranking Ukrainian officials beforehand. They also notified other allies, but unclear if those embassies electing to follow suit,” Jennifer Jacobs, a Senior White House reporter for Bloomberg News tweeted on Tuesday.

Meanwhile, columns of military vehicles including tanks were seen early Tuesday on the outskirts of Donetsk, Reuters reports.

“About five tanks in a column on the edge of the city and two more in another part of town, although no insignia were visible,” Reuters reporter added.

• AUD/USD retreats from intraday high, seesaws around the key resistance line after multiple failures to pierce it.
• Momentum line signals further upside, 100-DMA acts as extra hurdle to the north.
• Three-week-old rising trend line, 21-DMA restrict short-term downside.

AUD/USD extends pullback from intraday top to 0.7185, down 0.08% on a day as it flirts with a downward sloping resistance line from October 2021 during Tuesday’s Asian session.

Sustained trading beyond the 21-DMA and an ascending trend line from January 28 joins the rising Momentum line to support AUD/USD buyers.

However, multiple failures to provide a daily closing beyond the aforementioned resistance line near 0.7200 challenge the quote’s further upside.

Even if the AUD/USD prices rise beyond 0.7200 on a daily closing basis, the 100-DMA level of 0.7240 will question the pair buyers.

Alternatively, pullback moves may initially aim for the short-term support line near 0.7150 ahead of testing the 21-DMA level near 0.7130.

Following that, the 0.7050 and December 2021 low near 0.6990 may offer intermediate halts during the fall to challenge the yearly bottom surrounding 0.6965.

AUD/USD: Daily chart

Trend: Bears waiting for entry

In order to unlock investment and reduce red tape, the UK Treasury minister John Glen is expected to outline post-Brexit plans to reduce the burden on insurance firms while speaking at the annual dinner of the Association of British Insurers later this Tuesday.

Key quotes

“Planned reforms include giving insurers more flexibility to invest in long-term assets such as infrastructure and a “meaningful reduction in the current reporting and administrative burden.”

“EU regulation doesn’t work for us anymore and the government is determined to fix that.” 

“We have a genuine opportunity to maintain and grow an innovative and vibrant insurance sector.”

Market reaction

GBP/USD was last seen trading at 1.3582, down 0.11% on the day, undermined by the Russia-led risk-aversion.

• Bears are required to push EUR/GBP below 0.8313 for further weakness.
• The 50-EMA and 20-EMA are eyeing lower, which adds to the downside filters.
• The RSI (14) has sensed resistance near 60.00 as investors have added offers on the pullback.

The EUR/GBP pair has attracted potential offers near 0.8325, which is the highest traded price of Tuesday and near to the lows of Monday and Friday’s trading sessions. The level of 0.8325 has been a crucial one as it has been tested more than twice in previous trading sessions. Adding to that, the trendline placed from Monday’s high at 0.8352 coincides with the resistance.

The cross has remained positive in the Asian session after testing the lows of 0.8311 twice on Monday. On an intraday scale, EUR/GBP has failed to breach the 50-period Exponential Moving Average (EMA) on the upside, which has also supported bears to strengthen further. The 50-EMA and 200-EMA are pointing to the downside, which adds to the bearish outlook.

The Relative Strength Index (RSI) (14) has sensed resistance from 60.00, which indicates that investors have used the pullback to initiate fresh offers and weakness is still intact.

Bears are required to push EUR/GBP below Monday’s low around 0.8313 for further weakness. The asset may find supports near January 20 lows at 0.8305 and February 03 lows at 0.8284 respectively.

On the flip side, EUR/GBP may rebound if it manages to breach 0.8325 on the upside decisively. This may push the cross higher around Monday’s average price of 0.8337 and its high at 0.8352 respectively.

EUR/GBP intraday chart

• USD/RUB corrects a portion of the start of the week's rally. 
• Russia and Ukraine crisis forces RUB lower, all eyes on West response to Kremlin's latest move.

USD/RUB is down 0.18% on the session as the US dollar cools off following a frantic day of headlines related to the Ukraine crisis that saw the pair rally to fresh daily highs of 80.7170. USD/RUB is currently trading at 80.2140 after touching a corrective low of 80.1370.

Growing concerns about Russia-Ukraine tensions helped the US dollar rally to a fresh two-week high vs a basket of currencies measured by the DXY index. The Kremlin said there were no concrete plans for a summit over Ukraine between the Russian and US presidents and then Vladimir Putin signed a decree that recognises Donetsk and Luhansk in Eastern Ukraine as independent states. Additionally, Putin ordered troops to move into the region on a peacemaking patrol. 

The West is responding with sanctions. President Biden signed an executive order Monday imposing sanctions that target two Russia-backed breakaway republics in eastern Ukraine. ''The order bars "new investment, trade and financing by US persons to, from, or in" the so-called Donetsk People's Republic and Luhansk People's Republic, located in Ukraine's eastern Donbas region, White House press secretary Jen Psaki said in a statement,'' CBS News reported. 

Additionally, in a brief statement, European Council President Charles Michel and European Commission President Ursula von der Leyen said they "condemn in the strongest possible terms the decision by the Russian President to proceed with the recognition of the non-government-controlled areas of Donetsk and Luhansk oblasts of Ukraine as independent entities."

USD/RUB daily chart

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3487 vs. the estimated 6.3448,

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.

• DXY refreshes one-week high as Russia-linked fears underpin greenback’s safe-haven demand.
• UN calls emergency meeting, UK, Canada braces for fresh sanctions on Moscow after Putin orders troops inside Donetsk and Luhansk.
• US PMIs, Fedspeak and geopolitics to direct short-term moves, bulls are likely to keep reins amid market fears.

Market’s rush to risk-safety, mainly on Russia-Ukraine headlines, offers a warm welcome to the US Dollar Index (DXY) after a long weekend. That said, the greenback gauge refreshes weekly top to 96.16 while rising for the fourth consecutive day during Tuesday’s Asian session.

After declaring Donetsk and Luhansk in Eastern Ukraine as independent states and having signed a decree "on friendship and cooperation", Russian President Vladimir Putin ordered troops inside Eastern Ukrainian states, citing peacemaking efforts. The moves were considered as an early signal for Moscow’s invasion of Ukraine, which in the West has been flagging for long.

Following the move, the United Nations (UN), the UK and the US called for emergency meetings while Britain and Canada announced readiness for fresh sanctions against Russia. Additionally, Yomiuri mentioned Japan’s warning to stop the chip exports to Moscow if it invades Ukraine whereas Australia PM Scott Morrison said that they will be in lockstep with allies on sanctions on Russia.

Against this backdrop, S&P 500 Futures drop over 1.5% whereas the US 10-year Treasury yields decline six basis points (bps) to 1.87% by the press time.

On Monday, market sentiment initially improved on news that the US agreed on the Biden-Putin summit before Russian President Putin signaled no concrete plans for the summit. However, an extended weekend in the US and Canada restricted the reaction to the news.

It should be noted that the recent Fedspeak has gone softer and weighed on the Fed Fund Futures. On Monday, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

That said, the risk catalysts are likely to keep the DXY on the front foot. However, the preliminary US PMIs for February will also be important to watch amid the recent softening of Fedspeak.

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

Successful trading above a three-week-old descending trend line and 50-DMA, around 95.95-90 by the press time, keeps DXY bulls hopeful to challenge the monthly peak of 96.43.

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.3487 on Tuesday when compared to the previous fix and the previous close at 6.3448 and 6.3352 respectively.

The Reserve Bank of New Zealand is expected to deliver a 25 basis points (bps) rate hike for the third meeting in a row, as the central bank strives to combat soaring inflation, the latest Bloomberg survey of 20 economists showed.

The RBNZ is set to announce its policy decision on Wednesday at 0100 GMT.  It will also publish new forecasts in its quarterly Monetary Policy Statement.

Read: Reserve Bank of New Zealand Preview: Kiwi needs a double shot hike to fly higher amid geopolitical risks

Key findings

“The Reserve Bank will lift its official cash rate by 25 basis points to 1% Wednesday in Wellington, a majority of the economists polled showed.”

“Two predict a 50-point move. The Monetary Policy Committee may project an OCR of about 2.5% by year-end, a more aggressive upward path than previously forecast that would require a hike at each policy meeting in 2022.” 

“Economists also expect the RBNZ to explain how it will start to reduce its balance sheet, which swelled during its quantitative easing bond-purchase program.“

“Several expect the central bank to begin selling small amounts of government bonds to the Treasury Department.”

• USD/CHF has struggled to surpass 0.9160 as the risk-off episode has appealed more for the Swiss franc.
• Biden-Putin summit is uncertain on Russia’s precursors to invade Ukraine.
• The US Consumer Confidence and PMI Composite Reports will keep the investors busy.

The USD/CHF pair has rebounded from the lows of 0.9155 on the mounting tensions over the Russia-Ukraine tussle. The investors have underpinned the greenback against the Swiss franc on safe-haven appeal.

As Russia has been supported by the Separatists to build military bases in eastern Ukraine, the market participants are considering it a precursor to invade Ukraine. The move has resulted in a breach of international law.

The Western leaders are set to retaliate against Russia by imposing sanctions, which may impact their economy. The Russian markets have started showing the impact, even getting no material sanction yet as the former plunges more than 10% on Monday.

Meanwhile, White House Principal Deputy National Security Adviser Jonathan Finer said there can be no diplomatic meetings with US-Russia foreign ministers or presidents if Russia takes further military action in Ukraine, as per Reuters.

It is worth noting that the greenback has been underperforming against the Swiss franc since last week, courtesy of the declining bets over a 50 basis points (bps) rate hike by the Federal Reserve (Fed) in March’s monetary policy committee (MPC) meeting.

The US dollar index (DXY) is heading strongly to breach 96.00 on improving safe-haven appeal. Further, the DXY is likely to be guided by the US Consumer Confidence and PMI Composite Reports on Tuesday. While the Swiss Centre for European Economic Research will release ZEW Survey Expectations on Wednesday that will impact the Swiss franc.

USD/CHF technical levels

• USD/CAD bears are sinking in their teeth as oil firms. 
• Russian sanctions are now on the table and oil exports are vulnerable. 

USD/CAD is failing to break higher with conviction despite the risk-off tones surrounding the Russia / Ukraine crisis. The US dollar is firmer but so too is the price of oil which is helping to support the Canadian dollar. The following illustrates the 4-hour chart and prospects of a break to the upside in USD/CADso long as 1.2750's hold on a closing basis:

USD/CAD H4 chart

As for oil, WTI rallies on heightened tensions in Ukraine as oil bull’s eye $94.00, ''Russia is the third-largest oil and gas producer in the world. An escalation of the conflict pressures oil prices as uncertainty arises about any oil shortages amid the ongoing worldwide re-opening.''

In the above daily chart, the bulls are aiming for blue skies. 

• GBP/JPY picks up bids to pare intraday losses around one-week low.
• Bearish MACD, failures to cross 157.70-75 hurdle keep sellers hopeful.
• Convergence of 50-DMA, 11-week-old support line offers strong support.

GBP/JPY consolidates intraday gains around the weekly low, down 0.08% on a day near 156.00 during Tuesday’s Asian session.

The cross-currency pair refreshed a one-week low before reversing from 155.51.

Even so, MACD teases bears with the first downside signal in over two weeks. Also favoring sellers is the pair’s inability to cross the 157.70-75 area comprising multiple tops marked since January 05, 2022.

However, a confluence of the 50-DMA and an ascending support line from December 03, 2021, around 155.20-15, offers a tough nut to crack for the bears.

Following that, the 200-DMA level of 153.45 and January’s low of 152.90 will lure GBP/JPY bears.

Meanwhile, the corrective pullback may initially aim for the 157.00 threshold before challenging the 157.70-75 key resistance zone.

In a case where GBP/JPY prices provide a daily close beyond 157.75, October 2021 high near 158.25 will act as a validation point for the rally targeting above 160.00 region.

GBP/JPY: Daily chart

Trend: Further weakness expected

As the West condemns Russia’s move to recognize two self-proclaimed separatist republics in eastern Ukraine, the United Nations Security Council will meet early Tuesday behind closed doors.

A Russian diplomat was reported, as saying that the timing of the UN meeting will be 2 GMT.

Additional details

The session will be open, meaning people will be allowed to listen in on the discussion.

Expect a lively debate but not much more. 

Meanwhile, in response to Russia’s action, the US will take further measures on Tuesday punishing Russia over its recognition of separatist areas in Ukraine, a senior administration official told Bloomberg.

Related reads

S&P 500 Futures drop more than 1.5% as Russia-Ukraine woes spread faster

White House's Finer says all signs on the ground suggest step towards military action not diplomacy

• Market sentiment sours as Western warnings over Russian invasion of Ukraine gain more acceptance.
• S&P 500 Futures print four-day downtrend to poke January’s low, US Treasury yields begin the trading week on a back foot.
• US PMIs, geopolitics remains in focus, Fedspeak may entertain markets as well.

Risk-off mood amplifies during Tuesday’s Asian session as market fears over the Russian invasion of Ukraine gain stronger. Also weighing on the mood could be the Western reaction to Moscow’s readiness to shift military in Ukrainian states, as well as mixed concerns over Fed.

While portraying the mood, S&P 500 Futures drop 1.70% to 4,271, intraday low of 4,265.50, during the four-day downtrend that pokes 2022 bottom. On the same line were US 10-year Treasury yields, down 6.9 basis points (bps) to 1.863% by the press time.

Russian President Vladimir Putin’s ordering of troops inside Eastern Ukrainian states, citing them peacemaking efforts, recently triggered the market’s risk-off mood. Sentiment previously soured as Russia’s Putin recognized Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree "on friendship and cooperation".

In a reaction to Russian President Putin’s latest moves, the Western warnings of Moscow’s readiness for an imminent invasion of Ukraine gain more accolades and spoil the mood. Also negative for the risk appetite are the latest hints by the US, EU, Canada and the UK to criticize the Russian actions.

It should be noted that the UK and Canada are bracing for fresh sanctions on Moscow while Japan hints to stop the chip exports to Moscow if it invades Ukraine. Elsewhere, Australia PM Scott Morrison said that they will be in lockstep with allies on sanctions on Russia.

Recently, White House Deputy National Security Advisor mentioned, “We fully expect Russia to take military action.”

Elsewhere, risk-tone initially improved on Monday on news that the US agreed on the Biden-Putin summit before Russian President Putin signaled no concrete plans for the summit. However, an extended weekend in the US and Canada restricted the market reaction to the news.

On a different page, the recent Fedspeak has gone softer and weighed on the Fed Fund Futures. On Monday, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

Moving on, the preliminary US PMIs for February will be crucial while Fedspeak and geopolitical news may gain more attention.

Read: UK PM Johnson to chair COBRA meeting, Canada, US prepares economic sanctions over Russian actions

White House Principal Deputy National Security Adviser Jonathan Finer says the president has said will take whatever steps to keep diplomatic staff safe.

House's Finer says we fully expect Russia to take military action.

White House's finer says all signs on the ground suggest step towards military action not diplomacy.

White House's finer says there can be no diplomatic meetings with US-Russia foreign ministers or presidents if Russia takes further military action in Ukraine.

Market implications

Risk-off. Tensions in the Ukraine/Russia region alongside Russia’s President Vladimir Putin recognizing two separatists Eastern Ukraine regions increased appetite for the safe-havens. Consequently, risk-off is occurring in financial markets. USD/JPY has traded at fresh daily lows down at 114.49.

• Silver remains on the front foot around intraday/monthly high.
• Rising wedge, five-week-old horizontal hurdle to challenge buyers.
• 200-SMA acts as extra support to confirm downside bias.

Silver (XAG/USD) prices remain firmer for the fifth consecutive day, up 0.25% intraday near $24.00 during Tuesday’s Asian session.

In doing so, the bright metal refreshes monthly light while staying inside a three-week-old rising wedge bearish chart pattern.

Also challenging the XAG/USD bulls is a horizontal area comprising multiple levels marked during late January, near $24.10-20.

It’s worth noting that the RSI line quickly approaches the overbought territory and may challenge the silver buyers around $24.20, if not then January’s peak of $24.70 will be in focus.

On the flip side, pullback moves may aim for breaking the rising wedge’s support line, around $23.80 by the press time.

A clear downside break of $23.80 will confirm the bearish chart pattern suggesting a fresh low of 2022, below the current figure of $21.95.

During the fall, the 200-SMA level of $23.20 and the $22.00 threshold may act as intermediate halts.

Silver: Four-hour chart

Trend: Pullback expected

Ukraine president, Volodymyr Zelenskyy, says they want peace, but Ukraine's international borders will remain as they are no matter Russian statements.

Key statements

Ukraine president says the actions of the Russian federation are a violation of the integrity and sovereignty of the territory of Ukraine.

 Ukraine president says we are prepared to do anything for a long time.

Ukraine president says  this can mean a full withdrawal of the Russian federation from their Minsk agreements

Ukraine president says it destroys peaceful efforts and existing negotiation formats.

Ukraine president says the Russian federation legalizes its own troops, which have actually been in Donbas since 2014.

Ukraine president says convening of an emergency summit of the Normandy four was initiated.

Ukraine president says we are waiting for clear and effective steps of support from our partners.

Ukraine president says we are a supporter of a political and diplomatic settlement.

Ukraine president says we will not give anything to anyone.

Market implications

The comments follow Putin signing a separatist recognition decree over eastern Ukraine regions recognizing the Donetsk and Luhansk People’s Republics. Putin also ordered the Russian armed forces to go into separatist territory on peacekeeping missions. Consequently, risk-off is occurring in financial markets. USD/JPY has traded at fresh daily lows down at 114.49.

• GBP/USD slipped below 1.3590 on mounting tensions over the Russia-Ukraine tussle.
• The risk-off impulse is improving the safe-haven appeal.
• Britain is set to impose sanctions on Russia for breaching international law.

The GBP/USD pair fell below 1.3590 as Moscow has escalated the tensions on building up military forces in eastern Ukraine. The rising geopolitical tensions have spurred uncertainty in the market.

Russia has acquired the right to build military bases in Ukraine's two breakaway regions under new agreements with their separatist leaders, according to a copy of an agreement signed by President Vladimir Putin published on Monday, as per Reuters.

Earlier, the Kremlin labelled two regions of Ukraine: Donetsk and Lugansk as independent on Monday. The move has been retaliated by a flood of tweets from the US, UK, EU, and UN. The British foreign minister Liz Truss has said in a Twitter post that their administration will announce new sanctions on Moscow in response to their breach of international law and attack on Ukraine's sovereignty and territorial integrity.

Besides the Russian crisis risks, Investors will also keep an eye over the US Markit PMI Composite  Manufacturing and Services and Consumer Confidence numbers, which are due on Tuesday. Adding to that, Tuesday’s speech from the Bank of England (BOE)’s David Ramsden will help the market participants to brainstorm over their upcoming monetary policy.

Meanwhile, the US dollar index (DXY) is eyeing to breach Monday’s high at 96.16 on a hawkish stance from the Federal Reserve (Fed)’s Bowman. This has underpinned the greenback against the pound.