CFD Markets News and Forecasts — 28-02-2022

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, don’t comply with the recently easing Fed chatters as the gauge jumped to the highest since November 23 on Monday.

That said, the inflation expectations marked a 2.62% figure by the end of Monday’s North American session.

The jump in the inflation expectations could be linked to the ongoing Russia-Ukraine crisis.

On the contrary, CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

It’s worth noting that US President Joe Biden is up for discussing inflation in the State Of The Union (SOTU) speech on Tuesday. Should Biden highlight the rallying inflation expectations and hint at a faster Fed rate-hike, the US dollar will have a reason to consolidate recent losses.

Read: Global financial system on the brink

• GBP/USD struggle to keep the upside break of the key Fibonacci retracement level.
• Bearish MACD signals join sustained trading below previously important support to keep sellers hopeful.
• February’s double tops appear a tough nut to crack for buyers.

GBP/USD seesaws around 1.3415-20 during the initial Asian session on Tuesday, after a brief decline below crucial support the previous day.

In addition to the cable pair’s latest struggle in keeping the rebound, bearish MACD signals the clear break of the previously important support lines and moving averages also favor sellers.

However, a daily closing below the 61.8% Fibonacci retracement (Fibo.) of December-January upside, around 1.3385 will aim for February’s low near 1.3275, with the 1.3300 likely acting as a buffer.

In a case where GBP/USD remains soft below 1.3275, the late 2021 trough near 1.3160 will be in focus.

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

Even so, the 100-DMA and the support-turned-resistance line from December, respectively around 1.3500 and 1.3510, will challenge the GBP/USD bulls.

It should be noted that the double tops marked in February, near 1.3640-45, become crucial resistance.

GBP/USD: Daily chart

Trend: Pullback expected

• The NZD/JPY is up so far by 1.67% in the week, notwithstanding a risk-off market mood.
• US equity markets depict a mixed market mood, while the FX space favored safe-haven peers, except for the NZD.
• NZD/JPY Price Forecast: Bulls are probing the 200-DMA that, once cleared, could open the door for a rally towards 78.83 is on the cards.

The NZD/JPY began the week on the right foot, despite gapping down, during Monday’s Asian session, as Ukraine – Russian tensions escalated over the weekend. Western countries imposed harsh sanctions on Russia. The EU, US, UK, and Canada were the ones that increased the level of sanction, including the ban of Russia of the SWIFT system, bounding Russian financial maneuvering, while freezing assets of Russian government ministers and oligarchs linked to the Russian President. The NZD/JPY is trading at 77.87 at press time.

The US equity markets reflected a mixed market mood, with most of the indexes recording losses, except for the Nasdaq Composite, which rose 0.34%. Asian equity futures have carried on New York’s session mood, while in the FX complex, the CHF, and the JPY, got boosted by their safe-haven status, except for the NZD.

NZD/JPY Price Forecast: Technical outlook

The NZD/JPY seesawed between the February 24 daily low at 76.62 and the 200-day moving average (DMA) at 77.89. On its way up, the cross-currency pair broke above the 50-DMA at 77.32. Furthermore, the NZD/JPY Monday’s price action printed a significant bullish candle, showing that NZD bulls aggressively bought the pair as fundamental drivers, like the Reserve Bank of New Zealand (RBNZ) chance of hiking 50 basis points in the next monetary policy meetings, loom.

Therefore, the NZD/JPY is neutral biased, but the fundamental analysis indicates that it should appreciate in the near-medium term. Nevertheless, it is worth noting that market sentiment swings would influence the pair.

The NZD/JPY first resistance would be the 200-DMA at 77.89. A decisive break would ignite amove towards the 100-DMA at 78.33, which once cleared would expose the January 13 daily high at 78.83.

• USD/CAD has tumbled below 1.2700 amid higher oil prices on an escalation in sanctions on Russia.
• The loonie has also been dumped after the safe-haven assets lose their appeal.
• OPEC meeting to fix the demand-supply imbalance in oil will remain in focus.

The USD/CAD pair has shrugged off its gains in Thursday’s trading session and has tumbled below 1.2700 despite the unavailability of a material outcome from the Russia-Ukraine peace talks on Monday. This has been considered as a tiny step towards a ceasefire and safe-haven assets have lost their ground. However, the oil prices have remained flat around $96.00 as sanctions on Russia are set to tighten the oil supply in an already tight environment.

Earlier, the sanctions imposed on Russia by the Western leaders in response to its arbitrariness of invading Ukraine had crippled their SWIFT international banking infrastructure. The oil prices were boiling and rided near $100.

Meanwhile, the OPEC meeting on Wednesday whose agenda should be fixing the demand-supply imbalance will provide further guidance for the oil prices. The oil cartel looks to add up the total global supplies higher than the stipulated increment of 400k barrels per day (BPD) in April.

The US, being the largest importer of oil from Canada seems to face serious cash outflows amid rising oil prices, which has underpinned the Canadian dollar against the greenback.

The US dollar index (DXY) has lost its ground amid a risk-off impulse in the market, which has also strengthened the Canadian dollar against the American one.

Majorly, the headlines from the Russia-Ukraine war will remain the major driver for the loonie but investors will also focus on the Manufacturing Purchasing Managers Index (PMI) data by the US Institute for Supply Management (ISM), which is due on Tuesday.

• NZD/USD grinds higher around three-day top, pokes February high.
• Market sentiment dwindles as Russia continues to bombard Ukraine, peace talks extended through the week without any strong results.
• US dollar tracks downbeat Treasury yields, Wall Street closed mixed.
• China’s official PMIs will be important in Asia, US ISM PMI, Biden’s speech and risk catalysts will be crucial afterward.

NZD/USD stays on the front foot around 0.6775, taking rounds to a three-day high marked the previous day.

The kiwi pair began the week’s trading with a downside gap but the US dollar weakness and hawkish RBNZ that contrasts the recently softer concerns over Fed seemed to have helped the pair to begin Tuesday’s Asian session on the firmer note.

Despite dashing a 0.50% rate hike, the Reserve Bank of New Zealand (RBNZ) kept the hawkish tone intact during the last week, suggesting further interest rate lifts on the cards. That said, the latest comments were from RBNZ Chief Economist Yuong Ha mentioned, “50 bps moves are a possibility if needed.”

On the other hand, CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

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

Amid these plays, Wall Street closed mixed and the US 10-year Treasury yields dropped the most since early December 2021, dragging the US Dollar Index (DXY) down.

Moving on, NZD/USD traders will take clues from China’s NBS Manufacturing PMI and Non-Manufacturing PMI for February for fresh impulse. However, risk catalysts will be more important for clear directions. It’s worth noting that China’s headlines NBS Manufacturing PMI are likely to drop to 49.9 from 50.1, which in turn could allow the pair to consolidate recent gains.

In addition to the China data and Ukraine-Russia headlines, the US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech on Tuesday will be important as Biden is up for discussing inflation in the same.

Read: Russian invasion tests central bankers this week

Technical analysis

A clear upside break of a descending resistance line from mid-November, now support around 0.6745, directs NZD/USD buyers towards February’s peak of 0.6810. Though, the 100-DMA level surrounding 0.6850 may challenge the pair’s further advances.

• On Monday, the GBP/JPY seesawed between the 200 and 100-DMA but ended in a bullish tone.
• The equity markets finished mixed, while the CHF rose almost 1% in the FX space.
• GBP/JPY Technical Outlook: Neutral-bullish, but downside risks remain due to the closeness of the 200-DM.

The British pound finished Monday’s session in the green following a gap down attributed to geopolitical concerns linked to Ukraine – Russian war. On the weekend, West countries like the US, UK, and Canada, alongside the Eurozone, imposed “rigid” sanctions on Russian Government officials and oligarchs linked to Russian President Putin’s regime. That said, the GBP/JPY gapped down from February 25 close at 154.84 to 153.29, nearby the 200-day moving average (DMA) amid a risk-off market mood, though achieve to recover from daily lows. At the time of writing, the GBP/JPY is trading at 154.29.

Wall Street’s, reflected the actual downbear market mood, as shown by  US equities finished in the red, except for the Nasdaq Composite, rising 0.34%, finishing at 14,237.81. In the FX space, the main winners were the CHF, followed by the NZD and the JPY, while the EUR was the laggard of the day.

GBP/JPY Price Forecast: Technical outlook

In the overnight for North American traders, the GBP/JPY resumed its upward move, after gapping down, aimed towards the 155.00 mark, but failed short 2-pips. Then, the pair dropped to the 154.00 area and stabilized around 154.30.

The GBP/JPY is neutral biased. Monday’s price action seesawed between the 200-DMA on the bottom and the 100-DMA on the top but ultimately closed seven-pips short of the latter.

Therefore, the GBP/JPY is neutral-upward biased though downside risks remain, to the closeness of the 200-DMA. The cross-currency pair’s first resistance would be the 100-DMA at 154.38. Breach of the latter would expose 155.00, followed by the 50-DMA at 155.48.

• AUD/USD is eyeing 0.7300 amid a risk-off impulse despite no outcome of Russia-Ukraine peace talks.
• Investors will focus on monetary policy decisions from the RBA.
• Market estimates see an interest rate hike of 15 bps in the July-September quarter by the RBA.

The AUD/USD pair has witnessed a juggernaut rally after a bearish opening gap on Monday. The major has added 0.46% after surpassing Friday’s high at 0.7237 and trading near 0.7263, at the press time. There is no denying the fact that the rally is backed by a rebound in the market impulse. The market has remained vulnerable for risk-perceived assets on the continuous invasion of Ukraine by the Kremlin despite escalating sanctions to cripple its economy has improved the safe-haven appeal.

A pullback has been observed in the market impulse after a spree of risk-aversion appeal in the market. The investors have considered the peace talks between Ukraine and Moscow as an initiative to ceasefire despite the fact that the negotiations have ended with no material outcome.

Apart from the improvement in risk appetite, Tuesday’s monetary policy decision by the Reserve Bank of Australia (RBA) is in focus.

Investors should be cognizant that the RBA is maintaining its status quo by keeping the benchmark rates unchanged. However, to contain the soaring inflation at 3.5%, recorded in Dec 2021, over the targeted inflation rate of 2-3%, RBA’s Governor Philip Lowe might resort to raising interest rates now.

In the latest Feb. 18-24 Reuters poll, economists brought forward their rate hike expectations for a fourth straight month and expect the RBA to raise its key interest rate by 15 basis points to 0.25% in the July-September quarter, as per Reuters. Therefore, the market doesn’t see an interest rate hike n Monday.

The US dollar index (DXY) tumbles below 97.00 amid a risk-off impulse in the market, which has brought a pullback in the greenback. Meanwhile, the monthly Retail Sales from the Australian Bureau of Statistics have jumped to 1.8% from the previous print of (4.4%), which has also underpinned the Aussie against the greenback.

• Bears need to break the hourly support around.
• 1.1080 will then be eyed on the downside. 

EUR/USD has attempted to recover from the opening gap lows but is failing to get over the line, meeting resistance in a 78.6% Fibonacci retracement of the prior bearish impulse. The following illustrates the current market structure on the hourly chart and prospects of a downside extension.

EUR/USD H4 chart

EUR/USD H1 chart

From the hourly chart, the price will need to break the meanwhile support near 1.1192 which would be expected to act as a resistance on a retest. 1.1080 will then be eyed.

• US equities were mixed on Monday as investors digested new Western sanctions against Russia as war in Ukraine raged on.
• The S&P 500 closed 0.25% lower in the 4370s, having swung within a 60 point 4320-4380ish range on the day.
• On a busy week for US data and Fed speak, geopolitics is likely to remain the main market driver. 

US equities were mixed on Monday in tandem with their global peers as investors digested the latest barrage of Western sanctions against Russia as its invasion of Ukraine entered the fifth day. The S&P 500 closed 0.25% lower in the 4370s, having swung within a 60 point 4320-4380ish range on the day. The tech-heavy Nasdaq 100 index rose 0.3%, to the 14,200s, helped out by lower US yields. The Dow was down 0.5% to slip back below the 34,000 mark. The S&P 500 CBOE Volatility Index, though well off intra-day highs near 34.0, rose more than two points to around 30.0.

Some Russian banks will be kicked from SWIFT, the CBR saw most of its assets frozen, all Russian planes were banned from EU airspace and NATO nations announced intentions to drastically increase military aid to Ukraine. Energy prices subsequently spiked, exacerbating fears of persistent inflation and even stagflation in Europe. While those fears are not so acute in the US, data and Fed rhetoric this week is expected to underline the fact that the US economy remains inexorable on course for higher interest rates this year and next. Market commentators have cited this the main reason for this year’s pullback in stocks.

Tuesday sees the release of the January ISM Manufacturing PMI survey, Wednesday sees the first day of Fed Chair Jerome Powell’s semi-annual testimony before Congress, while Thursday sees his second day and the release of ISM Services PMI. On Friday, the Bureau of Labour Statistics will release the February labour market report. So it’s a busy week, but data will nonetheless play second fiddle to geopolitics; any signs that a ceasefire between Russia/Ukraine could see risk appetite return with strength.

White House press secretary Jen Psaki on Monday ruled out the idea of using US troops to create a no-fly zone over Ukraine amid the Russian invasion of the eastern European country.

She said it could lead to a war between the US and Russia. 

Psaki said a no-fly zone would require "implementation by US military — it would essentially mean US military would be shooting down planes, Russian planes."

• NZD/USD is firm in the NY session holding in bullish territory. 
• Commodity currencies benefit from prospects of higher prices. 

At 0.6764, NZD/USD is 0.33% is higher having travelled between a low of 0.6664 and 0.6777, recovering firmly into resistance at the highs on the coattails of the Australian dollar. 

''The Kiwi is higher this morning, having eventually bounced after yesterday’s dip on the weekly re-open. While volatility was seen, it exhibited almost straight-line performance as it put on just under 1 cent between the NZ close and the early hours of this morning, after which it has corrected a touch,'' analysts at ANZ Bank explained. 

As a matter of explanation for the strength in the kiwi, the analysts at ANZ Bank noted that ''the devastating Ukraine conflict remains front and centre and while somewhat convoluted, the rebound looks built on the idea that geopolitical risks might temper central bank enthusiasm for hikes, which has, in turn, helped cushion sagging risk appetite.''

''We expect more volatility as markets juggle downside risks to sentiment and upside risks to inflation, and see less of an obvious immediate trend.''

Additionally, Russia’s status as a large commodity exporter means that the threat of supply disruptions of oil, gas and various agricultural commodities has been amplified. This too could be supporting the commodity currencies as investors bet on inflation and seek out a hedge. 

• EUR/GBP reversed lower from its near-0.8400 closing levels last Friday to fall back into the mid-0.8300s on Monday.
• The euro underperformed as Western nations toughened sanctions against Russia, sparking fears of retaliation and energy supply disruptions.

EUR/GBP reversed lower from its near-0.8400 closing levels last Friday to fall back into the mid-0.8300s on Monday, predominantly as a result of geopolitics related euro weakness rather than sterling strength. The EU in conjunction with its NATO allies announced a raft of new, harsher sanctions designed to topple to Russian economy for its ongoing invasion of Ukraine over the weekend. Amid fears that Russia might retaliate by halting energy exports to the EU, energy prices in the region have spiked, triggering fears that the Eurozone economy might face near-term stagflation.  

Fears of economic weakness have seen market participants reduce ECB tightening expectations, resulting in a sharp drop in Eurozone bond yields. That, plus the fact that the Eurozone’s geographic proximity to the war in Ukraine, likely explains euro weakness on Monday. Indeed, the currency sits at the bottom of the G10 performance table for the day, while sterling sits nearer to the middle of the table. Ahead, with EUR/GBP sat close to the middle of recent 0.8300-0.8400ish ranges, the outlook for the pair is likely for more rangebound medium-term conditions.

Just as the Russo-Ukraine war and associate West vs Russia sanctions and global commodity price dynamics damage the near-term outlook for the Eurozone economy, the same can be said for the UK. Even prior to start of the war, economists already saw the UK economy as on a weak footing, with large tax and energy hikes on the way in April. While the BoE is very much expected to continue with near-term tightening in the coming months, expectations for economic weakness will only hamper expectations for the BoE’s terminal rate, which is ultimately a GBP negative.

Ahead, geopolitics is set to remain front of mind this week, though there are also plenty of calendar economic events for traders to keep an eye on. Following Monday’s hotter than expected Spanish inflation figures for February, focus will be on German numbers on Tuesday then Eurozone aggregate figures on Wednesday. Across the channel, there will be plenty of BoE speak to monitor, with traders interested as to how policymakers react to the latest geopolitical developments and how this affects the rate outlook.

What you need to take care of on Tuesday, March 1:

The risk-related sentiment remained as the main market motor. Safe-haven assets gapped higher at the weekly opening amid the escalating war between Russia and Ukraine. The sentiment temporarily improved the early US session amid peace talks. However, such talks ended without decisions. A new round of talks will take place in a few days, but hostilities resumed with Moscow bombarding civilian buildings near Kyiv.

President Putin ignores sanctions and financial chaos: Russia imposes a halt to foreigners' security payments. Local stocks markets will remain closed on Tuesday, while the RUB plummeted to record lows vs the greenback.

Western nations are also escalating their war preparations in the Baltic. Germany and Croatia, among other countries, announced defensive preparations.

ECB President Christine Lagarde tweeted: "I reiterated that the ECB will implement sanctions decided by the EU, and we are ready to do all that is needed within our mandate to ensure price stability and financial stability."

The EUR/USD pair flirted with the yearly low before bounding, now trading around the 1.1200 level. GBP/USD posted a modest intraday advance and settled around 1.3400. Commodity-linked currencies were among the best performers against the greenback, with AUD/USD trading around 0.7250 and USD/CAD in the 1.2690 price zone. The Swiss Franc and the JPY edged firmly higher against the dollar.

Spot gold trades around $1,900 a troy ounce, while the barrel of WTI changes hands at around $935.30, both up from Friday's close.

Increased demand for government bonds dragged yields lower. Meanwhile, most global indexes traded in the red.

Shiba Inu to outperform Dogecoin, as SHIBA targets a breakout to $0.000054

• Downbeat market mood augmented demand for the yellow metal.
• Vladimir Putin retaliates Western sanctions, putting the Russian army on high nuclear alert.
• XAU/USD Price Forecast: It is upward biased but subject to market sentiment.

Gold (XAU/USD) reached a daily high during the Asian Pacific session as the week began. The financial market’s mood worsened over the weekend when the Eurozone, US, UK, Canada, among other countries, imposed stringent sanctions on Ukraine. Russia’s response was fast when President Putin put its military on high nuclear alert. Those factors caused a gap on Monday when the markets opened at $1,919.15. At the time of writing, XAU/USD is trading at $1,903.

The sanctions included the removal of various Russian banks from the important SWIFT financial system. Furthermore, the US Placed sanctions on Russia’s top 10 financial institutions while having frozen assets of the Russian President and Russian ministers. Moreover, a dozen Russian oligarchs with ties with Putin witnessed the same alongside a travel ban.

In the meantime, US Treasury yields keep falling, signaling that the appetite for US Treasuries increased. Contrarily, the US Dollar Index, a gauge of the greenback’s value against a basket of six rivals, advance  0.19%, up at 96.81.

The US economic docket featured Goods Trader Balance for January, which printed a deficit of $107.63 B vs. $100.47 B estimated. At the same time, February’s Chicago and Dallas Fed Manufacturing Indexes came better than expected at 56.3 and 14, respectively.

XAU/USD Price Forecast

Gold (XAU/USD) gapped up and recorded a daily high at $1,919.15 but retraced to Monday’s daily pivot point around the $1,897.21 on a market sentiment swing. Late in the session, XAU/USD approaches the $1,900 mark, as market mood remains unchanged.

Indicators like the daily moving averages (DMAs) reside below the spot price, suggesting that gold is upward biased. The Relative Strength Index (RSI) is at 63, aims higher, after dropping to 60.70 on February 25, confirming the abovementioned, and with enough room to spate, before reaching overbought conditions.

That said, XAU/USD’s first resistance would be June 1, 2021, a daily high at $1,916.61, followed by February 28 daily high at $1,927.48 and then the YTD high at $1,974.48

• AUD/JPY daily chart's upside bias is towards 85 the figure. 
• There is a trapped scenario but bulls remain resiliant. 

AUD/JPY has proven to be highly resistant to the risk-off tones coming from the Ukraine crisis noise. Downside plays have been, while at times strong, short-lived. The commodity currency is collecting a bid as commodity prices are expected to benefit. Meanwhile, there are prospects of a breakout of daily support and resistance and the following is a hypothetical price trajectory for AUD/JPY across the time frames. 

AUD/JPY daily chart

As illustrated, the price is trapped below the counter-trendline and has so far failed to break out of a sideways channel. 

However, price tends to move back to where there is an imbalance and should the bulls remain committed, a break of current resistance will open prospects of a run towards 85 the figure to mitigate the Nov. 4, 2021, daily imbalance. 

AUD/JPY H4 chart

We are seeing a trapped scenario on the 4-hour chart as well. 

AUD/JPY H1 chart

This could play out on the hourly chart as above and below. A break of resistance would play into the daily chart's upside bias towards 85 the figure. 

• GBP/USD bears are fending off the bulls at the gain line.
• Ukraine crisis is denting risk appetite and weighing on the pound. 

GBP/USD is back into the red on Monday as the US session remains in risk-off mode. At 1.3404, the price is down 0.04% after travelling between a low of 1.3307 and a high of 1.3431. Sterling declined on Monday after Western nations imposed tough new sanctions on Russia for its invasion of Ukraine.

Western allies moved over the weekend to block the access of certain Russian banks to the SWIFT international payments system. It has also announced plans to implement restrictions on the Russian central bank’s international reserves which are expected to be in the tune of 600 billion US dollars. The Russian president, Vladimir Putin may have been planning to use Central Bank assets to mitigate the impact of sanctions. The sanctions also target Russia's National Wealth Fund and the Ministry of Finance.

In retaliation to the harsh new sanctions, Putin ordered his military general Sergei Shoigu to put their nuclear force on high alert. Russia has the world's largest arsenal of nuclear weapons and a huge cache of ballistic missiles. The United States, the world's second-largest nuclear power, slammed Putin's order as "totally unacceptable." Germany said Putin's nuclear order was because his offensive had "halted" and was not going to plan.

Meanwhile, delegations from Russia and Ukraine on Monday held their first round of peace talks in Belarus. After talks ended, reports emerged that both sides will return to their respective capitals for further consultations before the second round of talks. "The delegations are returning to their capitals for consultations and have discussed the possibility of meeting for the second round of negotiations soon," Ukrainian negotiator Mikhailo Podolyak was quoted as saying by AFP.

In other updates,  Ukraine's president Volodymyr Zelensky has signed an application for his country to join the European Union (EU). The question is how fast Ukraine might be able to fast track into NATO.

As for domestic drivers, the Bank of England policymaker Michael Saunders is scheduled to give a speech at the University of East Anglia on Tuesday. Tenryro, and Cunliffe are all due to speak. Money markets are currently pricing in 25 basis point rate increase from the BoE in March.

• USD/CAD has seen two-way trade on Monday but is now back under 1.2700 as risk appetite improves.
• While geopolitics will be a key determinant of USD/CAD sentiment going forward, this week’s data calendar is also very busy.
• Highlights include the BoC rate decision on Wednesday, Fed Chair Powell’s testimony before Congress and the February US jobs report.

USD/CAD has been choppy and mixed on Monday as investors digest the latest wave of Western sanctions against Russia for its military incursion into Ukraine, though the bears seem to have gained the upper hand for now. The pair briefly surpassed the 1.2800 level during Asia Pacific trade as FX markets began the week in a risk-off mood amid fears of contagion from a sanction-induced Russian economic collapse and energy supply disruption. But as energy prices rallied and the market’s broader mood improved amid hopes that Russia/Ukraine talks might yield a ceasefire, the pair fell sharply to current levels near 1.2690, where its now trades about 0.1% lower on the day.

That leaves USD/CAD not too far above this month’s lows in the 1.2630s, quite a turnaround from its highs just three days ago near 1.2900. Indeed, the pair trades roughly 1.5% lower versus last week’s highs and tailwinds from energy prices appear to be a major factor in the loonie’s resilience. Geopolitics and the ongoing Russo-Ukraine war will be a key determinant of USD/CAD sentiment going forward, but traders will also be keeping an eye on a very busy economic calendar this week.

Canadian Q4 GDP figures will be released on Tuesday, one day prior to an expected 25bps rate hike from the Bank of Canada on Wednesday. Meanwhile, US dollar traders will be keeping an eye on Fed speak with Fed Chair Jerome Powell testifying before Congress on Wednesday and Thursday and plenty of other Fed policymakers hitting the wires. Datawise, the February US jobs report is due on Friday, ahead of the February ISM PMI surveys on Tuesday and Thursday. 

• The market sentiment is downbeat as the Ukraine – Russia war escalates as Western countries impose harsh sanctions on Russia.
• The US Dollar Index rises 0.20%, while US Treasury yields fall.
• USD/JPY Technical Outlook: Despite falling in the day, the pair is upward biased and could probe the YTD high at 116.35 in the short term.

On Monday, financial markets’ risk appetite got dampened by increasing concerns around the Ukraine – Russia conflict that escalated on Saturday, amid Western countries imposing stringent sanctions to Russia, to some of its government officials, and to Russian oligarchs linked to the Vladimir Putin regime. At the time of writing, the USD/JPY is trading at 115.07.

In the meantime, US Treasury yields closely correlated to USD/JPY price action behavior fall. The US 10-year benchmark note falls eleven basis points, from 1.927% to 1.873%, a headwind for the USD/JPY. The greenback, sought as a safe-haven asset, rises as portrayed by the US Dollar Index, which measures the buck’s value vs. a basket of rivals, sits at 96.81, up 0.20%.

Earlier in the Asian Pacific session, the USD/JPY recorded its daily high at 115.77, followed by a drop towards the daily low at 114.97 in the last two hours, followed by a sudden jump above the 115.00 mark.

USD/JPY Price Forecast: Technical outlook

The USD/JPY is upward biased, as shown by the daily chart and its moving averages (DMAs) located above the spot price, aiming higher, as depicted by the upslope. Worth noting that the USD/JPY jumped off the 50-day moving average (DMA) at 114.94, and if it achieves a daily close above February’s 25 low at 115.14, it could open the door for further gains.

Hence, the USD/JPY first resistance would be February 25 daily high at 115.75. Breach of the latter would expose the 116.00 mark, followed by the YTD high at 116.35.

• AUD/USD bulls take back control following opening gap.
• AUD/USD recovers from the lows and is higher on the day. 

AUD/USD is firm on the day despite the risk associated with the Ukraine crisis. Instead, AUD is benefiting from prospects of an inflationary environment and prospects of higher commodity currencies. At the time of writing, at 0.7250, AUD/USD is up by 0.27% and has been within a range of 0.7157 and a high of 0.7264.

Looking around, it is a risk-off day in financial markets as the first round of peace talks concluded at the Ukraine-Belarus border on Monday without a ceasefire. Ukrainian cities including Kharkiv in the east were continuing to face some of the heaviest shelling of the war thus far, with reports of significant civilian casualties. The weekend headlines sent forex into a tailspin with big opening gaps due to the news of further, stringent sanctions on Russia from the West.

AUD/USD tumbled following reports Russian President, Vladimir Putin, ordered that nuclear deterrent would be put on high alert.  AUD lost come 60 pips in the opening gap but has since recovered those and has gone on to gain over 30 pips over Friday's closing price.

Commodity-FX supported

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

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

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

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

• The EUR/USD rallied in the middle of a slight improvement on market mood.
• The EU, US, UK, and Canada imposed another tranche of sanctions, spurring a risk-off market mood amid the escalation of the conflict.
• Spain inflation figures were reported, with the HICP expanding by 7.5% y/y higher than the 6.8% estimated.
• EUR/USD remains downward biased and might test the YTD low at 1.1106 as Ukraine – Russia’s war fails to de-escalate.

On Monday, the single currency began the week with a gap down from Friday’s close at 1.1273, to 1.1122 open, on harsh sanctions imposed on Russia, from the US, Eurozone, UK’s and Canada, among other countries. Market participant’s reaction augmented demand for safe-haven assets. In the FX space, the USD, JPY, and CHF witnessed ebbs towards them, while the EUR began on the wrong foot, though late developments have seen the pair climbing. At press time, the EUR/USD is trading at 1.1224.                                                                     

Ukraine - Russia war updates

Over the weekend, the EU, US, UK, and Canada agreed to “prevent the Russian central bank from deploying its international reserves in ways that undermine the impact of our sanctions,” per The Guardian. The objective is to paralyze Russian assets. Additionally, the US Placed sanctions on Russia’s top 10 financial institutions while having frozen assets of the Russian President and Russian ministers. Furthermore, a dozen Russian oligarchs with ties with Putin witnessed the same alongside a travel ban.

In the meantime, the Eurozone economic docket featured inflation figures for Spain. Spain’s HICP in February rose by 7.5% y/y higher than 6.8% estimated, while the inflation rate hit the 7.4% y/y more than the 6.1% of January.

Recent ECB speaking talked about downside risks to eurozone growth from the Ukraine crisis, but clear upside inflation risks haven’t even begun to be fully felt. ECB’s meeting in March would be interesting. Analysts at Brown Brothers Harriman said that they “expect the bank to confirm that PEPP will end as scheduled, we believe Lagarde and company will try to maintain maximum optionality to see how the situation unfolds.”

Meanwhile, Fed speakers witnessed Bullard and Waller maintaining their hawkish stances, favoring a 50 bps move. On Monday, Atlanta’s Fed President Raphael Bostic will cross the wires.

The US economic docket featured Goods Trader Balance for January, which printed a deficit of $107.63 B vs. $100.47 B estimated. At the same time, February’s Chicago and Dallas Fed Manufacturing Indexes came better than expected at 56.3 and 14, respectively.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart shows that the pair is downward biased. Why? The daily moving averages (DMAs) reside above the spot price, aiming lower, indicating that the downtrend might accelerate in the near term. Nevertheless, Monday’s gap down increased buying pressure on the pair, but as long as Ukraine – Russia’s war does not stop, the EUR/USD would be subject to market mood swings unless a peace agreement is reached.

Therefore, the EUR/USD would remain downwards. The pair’s first support would be 1.1200. Breach of the latter would expose the 2021 November 24 pivot low at 1.1186, followed by February 24 YTD low at 1.1106.

Peace talks between Russia and Ukraine on Monday aimed at bringing about a ceasefire to the ongoing conflict in Ukraine have ended, reported Reuters citing Russian state media, who quoted a Ukrainian official. Delegates from the respective countries will return to their capitals before embarking on a second round of talks, the Ukrainian official said. 

There is no reason to change the US nuclear alert level at this time, despite Russian President Vladimir Putin's recent directive to Russia's nuclear deterrent forces to be on higher alert, the White House said on Monday. 

The US believes that, contrary to Russian state media claims, the Russian airforce is yet to achieve air superiority in Ukrainian airspace, said a US Defense official on Monday. 

Additional Remarks:

"The main Russian advance on Kyiv remains slowed, having advanced only 5km from yesterday."

"The US assesses that Russia will try to encircle Kyiv in the coming days."

"Putin has committed nearly 75% of his pre-staged combat power into Ukraine."

"Russia has launched 380 missiles on Ukrainian targets."

"The US is monitoring Russian nuclear forces as closely as possible and hasn't seen any specific muscle movements as a result of Putin's alert order."

"There are no indications that troops from Belarus are being readied to move into Ukraine."

"Russia wants to be able to approach Kyiv from multiple directions."

"The Russians are frustrated by the slow advance on Kyiv and could review tactics to become more aggressive."

"Ukraine's missile defense capabilities remain engaged and viable and Ukraine's president still in control of his forces."

"Russia has not attempted to interdict Western weapons flows to Ukraine."

"There have been no US-Russian military contacts or communications in the last 24 hours."

"The US has seen some indications that Russia's Wagner group could be involved in the Ukraine conflict."

Atlanta Fed President Raphael Bostic said on Monday that the Fed needs to be "forceful and committed" in getting inflation under control, as reported by Reuters.

Additional takeaways

"For now, inflation expectations in longer-term haven't moved in a significant way."

"Labor supply is a huge problem."

"Until pandemic is over, there will be effects on labour force and consumers."

"Important Fed keeps inflation expectations anchored."

"I will observe and adapt on monetary policy."

"Our understanding of the economy is shifting on a weekly basis."

"Fed needs to get off emergency stance and get rates back to a more normalized level."

"Prudence in Fed not moving too dramatically."

"Markets are already pricing in a fair amount of Fed movement."

"We need to pull back Fed's excess liquidity to the extent possible."

"Removing excess liquidity will not be disruptive to economy."

"Today I am in favor of a 25 bps move at March meeting."

"Still more data points to come in before next meeting."

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen rising 0.25% on a daily basis at 96.77.

Ukrainian President Volodymyr Velenskyy on Monday signed Ukraine's application to join the European Union just as talks between a Ukrainian and Russian delegation to try and organise a ceasefire to the Russo-Ukraine war ended. Market participants await reports on how the talks went. Expectations for agreement are low, given Russian demand for Ukrainian "neutrality", which presumably means Ukraine not being allowed to join the EU. 

Market Reaction

There has not been a reaction to the latest headlines. USD/RUB continues to trade near record highs in the 110 area. 

Russia is extremely likely to default on its external debts if the Ukraine crisis continues to worsen, the deputy chief economist of the Institute of International Finance (IFF) said on Monday. The Russian economy is to shrink by low double digits this year, IFF added, and inflation is to soar by double digits following Western sanctions. Russia's central bank will do everything it can to protect Sberbank and its savers, other smaller Russian banks might fail. There are significant trade, financial and pure contagion risks for Western economic given the scale of sanctions, the IFF warned. 

Market Reaction

The rouble continues to trade in choppy fashion with USD/RUB near 110 and just below record highs hit earlier in the session. Attention is currently on Russian/Ukrainian talks taking place between delegations at the Ukraine/Belarus border. 

Some of the specifics of war in Ukraine means that the winners and losers in the FX space are different than in previous crises, in the opinion of economists at Rabobank. They view the euro as vulnerable and expect the EUR/USD to target 1.10 on a break under the 1.11 level.

Currencies with commodities links to perform well amid Russia-Ukraine conflict

“In the current environment, we expect the commodities currencies to remain well supported.”

“Insofar as the BoJ and the SNB have been actively engaged in dispersing speculative inflows for year through the use of very accommodative policy settings, we favour the USD vs. the JPY and CHF as a safe haven trade.”

“We expect the SEK to remain under pressure vs. the USD as long as the assault on Ukraine continues.”

“The Eurozone maintains a healthy current account surplus and from time to time a debate arises as to whether the EUR could adopt safe haven behaviours. Clearly, this is unlikely at present.” 

“In view of the risks to gas and oil supply to Germany, the EUR could find itself stifled by a new wave of growth risks and potentially by increased concerns about stagflation. A break of the recent low close to the 1.11 level would likely focus attention on 1.10.”

• WTI remains well supported in the $95.00s as markets fret about potential disruption to global energy flows.
• Western nations imposed harsher sanctions on Russia over the weekend, spurring concerns about a potential retaliation.
• OPEC+ meets on Wednesday and is expected to stick to its existing policy of hiking output by 400K BPD/month.

Though oil prices have backed off from earlier highs as markets await the outcome of Ukraine/Russia talks and traders hope (though don’t expect) that a ceasefire might materialise, front-month WTI futures remain well underpinned in the $95.00s. At current levels in the $96.00s, WTI is trading with on-the-day gains of over 4.0% or more than $3.50, amid fears that the raft of new sanctions announced by Western nations on Russia over the weekend might disrupt global energy flows.

Under new sanctions announced over the weekend, various Russian banks will be kicked out of SWIFT, the CBR’s access to international FX reserves has been curtailed and Russian planes are banned from EU airspace. Moreover, the EU will also begin sending lethal military aid to support Ukraine and Germany and Western companies are beginning to divest from the country on mass. Whilst Western sanctions don’t directly target Russian energy exports, there is a fear that Russia might retaliate to Western sanctions by reducing or completely halting energy exports to Europe.

Traders are subsequently becoming more bullish on crude oil moving forward. Goldman Sachs has upped their one-month forecast for Brent crude (current around $x per barrel) to $115. Analysts have said that, as OPEC+ and other producers struggle to up supply, the only major downside catalyst for oil at this juncture is the prospect of demand destruction as a result of high energy price-induced economic weakness.

On which note, the group of energy-producing nations on Monday revised their forecast for an oil market surplus in 2022 to 1.1M barrels per day (BPD) from 1.3M BPD previously, indicative of expectations for an ever-tighter market. OPEC+ meets on Wednesday and is expected to agree to increase output quotas by a further 400K BPD in April, a continuation of their recent policy of hiking output.

Russian President Vladimir Putin told French President Emmanuel Macron in a call on Monday that a neutral stance for Ukraine is needed for a resolution of the current conflict, reported Reuters. Russia is open to talks with Ukraine and expects them to lead to the needed results, Putin reportedly told Macron in the call. 

Russian and Ukrainian delegations are currently in talks near Ukraine's border to Belarus. Hopes for a ceasefire to be agreed upon are slim, with the Ukrainian foreign ministry earlier saying that Ukraine would not surrender to the invading Russians and demanding that all Russian forces immediate withdraw from Ukraine. 

EUR/USD opened with a big bearish gap but it has clambered back to trade positive on the session, if still lower than Friday’s close. Economists at Scotiabank expect the world's most popular currency pair to push lower towards the 1.11 zone in the coming days.

Gains above 1.15 are needed to confer a sense of strength 

“Some gap-filling gains may confer a bit more strength on the EUR to the mid/upper 1.12s in the short run but we still rather think the EUR will struggle to gain meaningfully in the near/medium term.”

“Spot gains above 1.15 are needed to confer a sense of strength on the medium term charts and that looks a big ask at the moment.”

“Short-term trends are likely to be choppy but we look for renewed pressure on the 1.11 support zone in the coming days.”

• The market sentiment is downbeat spurred by developments in the Ukraine – Russia war, increasing appetite for safe-haven peers, with the greenback rising, except for the CHF.
• Newly imposed sanctions in Russia spurred a rate hike of the Russian Central Bank of 1100 basis points amid ruble’s free-fall.
• USD/CHF Technical Outlook: Neutral bias, but upside/downside risks remain, as USD/CHF traders test the 200-DMA.

In the last week, the USD/CHF recorded gains of 0.46% amid a busy day in the financial markets, amid Ukraine - Russia war, which grabbed most of the headlines, spurring fluctuations in the market mood. At the time of writing, the USD/CHF is trading at 0.9183.

Stringent sanctions imposed during the weekend by the US, Europe, and other countries dampened the market mood, with stocks falling, haven assets rallying, like the greenback and the Swiss franc, while precious metals and oil rise. It is worth noting that the Russian Central Bank hiked rates from 9.50% to 20% to cap the plunging ruble.

In the overnight session for North American traders, the USD/CHF reached a daily high at 0.9277, appearing to break the top of the trading range. However, as soon as European traders got to their offices, the pair plummeted almost 90-pips to 0.9180 as traders rushed to security liquidity.

USD/CHF Price Forecast: Technical outlook

The USD/CHF tests the 200-day moving average (DMA) at 0.9179, and on its way south, the USD/CHF broke the 50 and 100-DMAs at 0.9197 and 0.9205, each. If the USD/CHF registers a daily close of the 200-DMA, that could expose February 21 swing low at 0.9150, followed by January 21 pivot low at 0.9105 and the 2021’s November 2 low 0.9085.

Upwards, the first resistance would be the 50-DMA at 0.9197. Breach of the latter would expose the 100-DMA at 0.9205, followed by February 24 daily high at 0.9288.

• Silver is trading on the front foot above $24.50 on Monday as geopolitics remains the driving market force.
• Economic uncertainty related to new Western sanctions on Russia and paring of central bank tightening bets is supporting precious metals.

Spot silver (XAG/USD) prices are trading higher this Monday in the $24.50 region, up about 1.0% or roughly 25 cents on the day, underpinned by uncertainty relating to the shifting the global geopolitical order following Russia’s invasion of Ukraine. The EU stance against Russia hardened significantly over the weekend.

Western countries will now ban some Russian banks from SWIFT, the CBR had a large portion of its forex reserves frozen and the EU will provide direct military aid to Ukraine after blocking its airspace to all Russian aircraft. There is considerable uncertainty as to how these measures might impact global growth and levels of uncertainty aren’t helped by the threatening tone of Russian President Vladimir Putin, who directed his nuclear deterrent forces to be on a state of heightened alert.

As traders digest recent developments as the Russo-Ukraine war rumbles on, its not really surprising to see safe-haven precious metals such as silver in demand. XAG/USD bulls will take comfort from the fact that the metal seems to be finding good support at its 200-Day Moving Average at $24.20. As global energy prices march higher on fears of Russia supply disruptions, demand for inflation protection is likely to remain elevated.

That, coupled with traders paring back their Fed, ECB and other major central bank tightening bets and the subsequent drop in global bond yields suggests XAG/USD’s trading bias this week may be tilted higher. Even though this week’s US data (official jobs report and ISM surveys) are likely to show a robust ongoing recovery and Fed speak is likely to reaffirm near-term tightening expectations, XAG/USD bulls will likely target last week’s $25.62 highs.

Economists at Credit Agricole CIB Research believe that the EUR/USD pair is likely to remain close to recent lows in the near-term amid escalating geopolitical tensions.

Escalating Ukrainian crisis to fan stagflation headwinds buffeting the Eurozone

"The escalating Ukrainian crisis can fan the stagflation headwinds buffeting the Eurozone and can delay the ECB exit from its accommodative policies.”

“The euro's relative rate disadvantage, as well as the persistent geopolitical and economic risks, can discourage foreign investors from returning to the European capital markets for the foreseeable future while further worsening of the Eurozone external imbalances can reduce net demand for EUR by corporates.” 

"We think that the EUR/USD could remain close to recent lows in the near-term.”

Geopolitical tensions between Russia and Ukraine have greatly escalated during last week. The crisis will likely mark a new security paradigm for Europe and the US. Still, economists at Citibank remain confident in markets.

Future equity gains to be dependent on delivery of increased corporate earnings

“We think Fed is still on track to hike in March despite rising geopolitical concerns. Besides, we expect inflation to come down possibly by Spring 2022 and global economic expansion will survive into 2023 and beyond. When lasting slowdown in inflation becomes evident, the Fed might not surprise markets with greater hawkishness.”

“The crisis could accelerate the Unstoppable Trend of ‘Greening the World’ as EU could focus on developing renewable energy capacity to be more independent from Russia. Also, a peak in long-term US interest rates – perhaps coinciding with peak inflation – may generate a stronger immediate return environment for US growth shares.”

“We believe a future 9% gain in the S&P 500 to be roughly in line with EPS gains in mid to high single digits, a pace that requires continued economic expansion.”

“If energy prices do not collapse as they did at the start of the last Fed tightening cycle in 2014 – when crude oil fell 66% over two years – we would expect broad emerging equity markets to perform well and offer diversification to global equity portfolios.”

The Reserve Bank of Australia will announce its decision on monetary policy on Tuesday, March 1 at 03:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's decision. The RBA will likely maintain its benchmark rate at 0.1% while inflationary pressures and wage growth take center stage.

Westpac

“The cash rate will be held at the record low of 0.1%. The focus will be on any shift in language in the decision statement. We expect the tightening cycle to begin this August. We anticipate that by August, with the benefit of two further readings on inflation as well as updates on unemployment and wages, the case will be made for the tightening cycle to commence.” 

Standard Chartered

“We think the RBA is unlikely to deviate too much from its February guidance given that the last meeting saw quite a few updates. In addition, the central bank may add geopolitical tensions to its list of uncertainties. If the central bank drops its reference ‘to be patient’ on rate normalisation, it would be a hawkish surprise. We currently expect the RBA to start hiking rates in August.”

ING

“The RBA will hold its policy cash rate target at 0.1%. Wages growth, which is the only missing criterion standing in the way of a rate hike, came in at 2.3% YoY in 4Q21. This is lower than the 3% rate which would be consistent with sustained inflation in the RBA’s 2-3% target range. Despite the tightness of the labour market, this has not yet trickled through substantially to wages growth. The RBA’s 3% threshold for wages may not be met until the 2Q22 wage figures are released in the second half of the year.”

Danske Bank

“We expect the RBA to continue pushing against the very hawkish market pricing, especially following modest Q4 wage growth data.”

SocGen

“We expect the cash rate target to remain at 0.10%. Though we don’t expect the RBA policymakers to give any clear hints on the timing of the first-rate hike at the March meeting, we believe that the RBA’s official statements and speeches support our base scenario of a rate hike in 3Q this year. In addition, we believe that the contraction in the RBA balance sheet (i.e. the decision to stop the reinvestment of the matured bonds) will come after the first rate hike. The RBA is likely to decide to reinvest the proceeds of the matured bonds in May in order to minimise any adverse impacts on the financial markets.”

Citibank

“RBA Board meeting Citi cash rate forecast; 10bps, Previous; 10bps – this week’s RBA Board meeting will be framed against the context of easing COVID-19 restrictions, recent data showing only modest wages growth, the likelihood of a slower GDP growth rate at the end of 2021 than expected by the Bank and conflict between Russia and Ukraine. Given recent communication from the RBA about remaining patient, this should keep it treading a neutral path and making very little in the way of changes to the monthly policy statement. The measured and neutral policy guidance from the RBA will stand in stark contrast to the more hawkish guidance provided by the RBNZ.”

TDS

“We expect no changes to policy settings, the target cash rate staying at 0.10%. The Q4'21 wages report was largely in line with the RBA's forecast, so the Bank is likely to reiterate it remains 'patient' as the pick-up in wages growth is expected to be 'gradual'. Unfolding Ukraine-Russia tensions are unlikely to rate a mention. The Q4'21 wages outcome makes a Jun'22 hike less likely. It's more likely the RBA shifts to a hawkish stance at that meeting and delivers a hike in Aug as we expect. AUD risks are skewed higher if the outcome leans more hawkish than dovish.”

The war in Ukraine is a tragedy. Economists at ING take a first look at the sanctions and broader possible economic implications from the sanctions and the war.

The potential economic impact of the war

“In the shorter run, disruptions to the energy and commodity supply will weigh on growth and push up inflation for longer. Particularly in Europe, the risks of stagflation have increased.”

“For the European Central Bank, but also for other central banks, this new situation is likely to slow down or delay policy normalisation. At the ECB's meeting next week, any hints of rate hikes are out of the question. We expect the ECB to avoid tying its hands in any direction; still announcing a taper, while not ruling out new easing of monetary policy if needed.”

GBP/USD extended its rebound on Friday. However, strength stays seen as corrective ahead of a retest of medium-term support at 1.3173/35, in the view of analysts at Credit Suisse.

GBP/USD is ideally capped at 1.3487/1.3500

“GBP/USD has been capped well below the 55-day average and mid-February lows as well as its uptrend from December, seen starting at 1.3487 and stretching up to 1.3500 and this rebound is viewed as a temporary bounce prior to the risk turning lower again.”

“Support is seen at 1.3329 initially, below which should see a fall back to 1.3272 and then medium-term support at 1.3173/35 – the 2021 lows, 38.2% retracement of the 2020/2021 uptrend and 200-week average. We continue to look for a good floor here. Should weakness directly extend though, we would see little then in terms of meaningful support until 1.2855/29.”

• AUD/USD attracted fresh buying near the 0.7160 area and reversed the initial bearish gap opening.
• Upbeat domestic data, bets for an eventual RBA rate hike in 2020 extended support to the aussie.
• A recovery in the risk sentiment undermined the safe-haven USD and contributed to the move up.

The AUD/USD pair built on its steady intraday move up and climbed to a fresh daily high, around the 0.7220-0.7225 region heading into the North American session.

Following a bearish gap opening on Monday, the AUD/USD pair attracted some dip-buying in the vicinity of mid-0.7100s and was supported by a combination of factors. The early uptick followed the upbeat release of the Australian Retail Sales data, which reaffirmed market bets for an eventual interest rate hike by the Reserve Bank of Australia in 2022. Apart from this, a recovery in the equity markets prompted some intraday selling around the safe-haven US dollar and further benefitted the perceived riskier aussie.

The initial reaction to the weekend developments surrounding the Ukraine crisis seemed short-lived, which was evident from an intraday bounce across the global equity markets. It is worth recalling that 
Western nations ramped up efforts to punish Russia for its invasion of Ukraine and imposed tough new sanctions, including cutting some of its banks off the SWIFT financial network. Moreover, Russian President Vladimir Putin upped the ante on Sunday and put the country’s strategic nuclear forces on high alert.

The market nervousness, however, eased after the Russian negotiator said that they are interested to reach an agreement with Ukraine as soon as possible. Adding to this, reports indicated that the Ukraine-Russia dialogue has already started in Belarus and Russian media is coining this as 'peace talks', raising expectations for some de-escalation of tensions. This, in turn, helped the risk sentiment to stabilize a bit and provided modest lift to the AUD/USD pair amid some repositioning trade ahead of the RBA on Tuesday.

That said, any optimistic move in the markets is likely to remain capped as the focus remains glued to fresh developments surrounding the Russia-Ukraine saga. Hence, it will be prudent to wait for some follow-through buying, possibly beyond the 100-day SMA hurdle, before positioning for any further gains amid absent relevant market moving economic releases.

Technical levels to watch

Canada's Current Account was a C$ 0.8B deficit in Q4 2021, according to data released by Statistics Canada on Monday. That was well below the expected surplus of C$ 4.8B and marked a drop from Q3's C$ 0.8B surplus. 

Market Reaction

The latest weaker than expected Canada trade figures do not seem to have impacted the loonie, with USD/CAD at present largely unmoved in the 1.2740s area. The BoC will be the main event of note this week for the loonie though the overarching direction of FX market sentiment will remain predominantly influenced by geopolitics. 

The US Goods Trade deficit widened to $107.63B in January, a new record high, much larger than the expected monthly deficit of $99.6B and much larger than December's deficit of $100.47B, according to data from the US Bureau of Economic Analysis released on Monday.  

Market Reaction

The latest much larger than expected US trade deficit figures do seem to have weighed a tad on the US dollar, with the DXY falling back under the 97.00 level in recent trade and into the 96.80s. But US data will take a backseat as a USD driver this week to geopolitical developments as the Ukraine war rumbles on and Western sanctions versus Russia evolve. 

The US and other major oil-consuming nations are considering releasing 70M barrels of oil from their emergency stockpiles as crude oil prices surge, the WSJ reported on Monday. 

Central Bank of Russia (CBR) Governor Elvira Nabiullina said on Monday that further monetary policy decisions from the central bank would be driven by assessments of external risks. Explaining the decision over the weekend to hike interest rates by 1050bps to 20.0%, Nabiullina said that our financial system and economy faces a non-standard situation. Going forward, the central bank will be very flexible in its decisions. 

Additional Remarks:

"High demand for cash has sent the banking sector into a structural deficit of liquidity."

"The central bank sold $1B in the market on Thursday."

"We did not carry out interventions on Monday due to new restrictions."

"We are in constant contact with banks and are ready to support them."

• GBP/USD recovered around 100 pips from the daily low and has now filled the weekly bearish gap.
• Signs of stability in the equity markets undermined the safe-haven USD and extended some support.
• The upside remains capped amid fears about an escalation in tensions between Russia and the West.

The GBP/USD pair climbed to a fresh daily high during the mid-European session and is now looking to build on the momentum beyond the 1.3400 round-figure mark.

The pair rallied around 100 pips from the vicinity of the 1.3300 mark on Monday and has now filled the weekly bearish gap amid the emergence of some intraday US dollar selling. The nervousness over the worsening situation in Ukraine eased after the Russian negotiator said that they are interested to reach an agreement with Ukraine as soon as possible. This, in turn, led to a goodish recovery in the equity markets, which dented demand for the safe-haven greenback and was seen as a key factor behind the GBP/USD pair's strong intraday bounce.

According to the latest reports, the Ukraine-Russia dialogue has already started in Belarus and Russian media is coining this as 'peace talks', raising expectations for some de-escalation of tensions. Apart from this, a steep decline in the US Treasury bond yields, along with diminishing odds for a 50 bps Fed rate hike move in March, further undermined the greenback. The recent geopolitical developments now seem to have convinced investors that the Fed would not adopt a more aggressive policy stance to combat stubbornly high inflation.

It, however, remains to be seen if the GBP/USD pair is able to build on the move or meets with a fresh supply at higher levels amid the risk of a further escalation in tensions between Russia and the West.  It is worth recalling that Western nations ramped up efforts to punish Russia for its invasion of Ukraine and imposed tough new sanctions, including cutting some of its banks off the SWIFT financial network. Moreover, Russian President Vladimir Putin upped the ante on Sunday and put the country’s strategic nuclear forces on high alert.

This makes it prudent to wait for some follow-through buying before positioning for any meaningful upside. In the absence of any major market-moving economic releases, the market focus will remain clues to fresh headlines surrounding the Ukraine crisis. This will continue to play a key role in influencing the broader market risk sentiment and the USD price dynamics, which, in turn, should provide some impetus to the GBP/USD pair.

Technical levels to watch

• EUR/USD has rebounded from lows just above 1.1100 towards the 1.1200 level but continues to trade with substantial on-the-day losses.
• The euro is the major G10 underperformer as markets assess the consequences of the latest EU/Western sanctions against Russia.

After coming within a whisker of printing fresh annual lows near the 1.1100 level at the re-open of Monday Asia Pacific trade as markets digest the weekend’s geopolitical developments, EUR/USD has been erratic but staged a reasonable comeback. Having been as much as 1.3% lower on the day when trading at lows in the 1.1110s, the pair now trades down closer to 0.7% on the day at the 1.1200 level. Uncertainty regarding the economic impact of the latest round of EU/Western sanctions against Russia, which include the blocking of some Russian banks from SWIFT and the freezing of a large portion of the CBR reserves will likely knee-cap short-term rallies.

An emergent consensus view of the past few sessions since Russia’s invasion of Ukraine has been that ECB tightening, previously thought to begin as soon as Q4 this year, will now be substantially delayed. The Eurozone economy now faces potentially significant disruption to its energy supply, with higher associated energy costs set to further eat into living standards, as well as a generalised hit to economic confidence with a war on its doorstep. This likely explains why the euro is the major underperforming G10 currency on Monday.

US data this week in the form of the January jobs report January ISM surveys, as well as Fed, speak with Chair Jerome Powell delivering his semi-annual testimony before Congress is likely to remind markets that the Fed remains on the tightening path. That, coupled with a continued safe-haven-related USD bid as the Ukraine war rumbles on and euro underperformance on economic uncertainty is likely to keep EUR/USD gains capped. One risk event to watch on Monday is talks between a Ukrainian and Russian delegation on the Ukraine/Belarus border. If talks were to deliver a ceasefire (not expected), that could see safe-haven demand unwound and the euro rebound back towards 1.1300.

A Senior Biden Administration official said on Monday that recent actions taken by the US and its allies to impose new restrictions on the Central Bank of Russia (CBR) will prevent the central bank from using its dollars, euros, pounds and yen to defend its currency. 

Additional remarks:

"US sanctions against Russia's central bank were months in the planning... 'we were ready'".

"Putin's war chest of $630bln in reserves only matters if he can use them and after today's action that will no longer be possible."

"We will continue to scope our measures to ensure steady supply of energy."

"Our strategy is to make sure the Russian economy goes backwards as long as Putin continues with his Ukraine campaign."

"Our relationships with allies... 'trust and solidarity' were important in taking collective action against Russia."

"The Russian central bank has been attempting to bring assets to Russia and other safe havens since Saturday's sanctions announcement."

"Today's action to prohibit transactions with the Russian central bank will hinder Russia's ability to access hundreds of billions of dollars."

"Coordinated action will cause weakening of the Russian currency and make financing more difficult."

"We always saw Russia's $630bln in reserves as an insurance policy, action today 'removes that insurance policy'."

"If Belarus continues to aid and abet Russia's aggression in Ukraine, they will also face consequences."

"Sanctions against the central bank were immediately effective and we wanted to put them in pace before US markets open."

"Russian inflation is very likely to spike while purchasing power and investment are likely to plummet."

"The US remains in close contact with the EU to finalize a list of Russian banks that will be cut off from SWIFT."

"Actions by the US and its allies will prevent Russia from using its dollars, euros, pounds or yen to defend its currency."

"We don't want rising prices to benefit Putin given Russia's role as leading energy supplier."

"The US and its allies also have a collective interest to degrade Russia's capacity to be a leading energy supplier over the long term."

"Faced with such uncertainty, there is a case for the central bank to accompany the recovery with a light touch," European Central Bank (ECB) policymaker Fabio Panetta said on Monday, per Reuters. "The ECB should take moderate and careful steps in adjusting policy, so as not to suffocate the as yet incomplete recovery," Panetta added.

Additional takeaways

"We will take any measures necessary, using all our instruments to shore up confidence and stabilise financial markets."

"The dramatic conflict in Ukraine is now weighing negatively on both supply and demand conditions exacerbating risks to the medium-term inflation outlook on both sides."

"Inflation outlook has pitfalls on both sides."

"In this environment, it would be unwise to pre-commit on future policy steps until the fallout from the current crisis becomes clearer."

"We should adjust policy carefully and recalibrate it as we see the effects of our decisions, so as to avoid suffocating the recovery and cement progress towards price stability."

"ECB stands ready to act to avoid any dislocation in financial markets that could stem from the war in Ukraine and to protect the transmission of monetary policy."

"Russian invasion of Ukraine is now intensifying this uncertainty."

"We need to be certain that removing accommodation too suddenly will not trigger market turmoil."

"Would be imprudent to move further until we have strong confirmation that both actual and expected inflation is durably re-anchoring at 2% in a world of tighter financing conditions."

"If we respond to a false signal and react to a rise in inflation that might not be lasting, we could suffocate the recovery."

"Inflation outlook is stronger today than it was before the pandemic."

"Labour market is not looking excessively tight."

"Danger of high inflation becoming entrenched seems contained at the moment."

Market reaction

The shared currency showed no reaction to these comments and was last seen rising 0.5% on the day at 1.1211.

• USD/CAD continued with its struggle to build on the momentum or find acceptance above 1.2800.
• Signs of stability in the markets, sliding US bond yields failed to assist the USD to preserve its gains.
• Retreating crude oil prices undermined the loonie and continued lending some support to the pair.

The USD/CAD pair retreated nearly 50 pips from the daily high and was last seen trading around the 1.2765-1.2760 region, still up over 0.45% for the day.

The pair opened with a bullish gap on the first day of a new week and gained some positive traction during the early part of the trading, albeit struggled to find acceptance above the 1.2800 mark. The initial signs of stability in the financial markets, along with a sharp slide in the US Treasury bond yields failed to assist the safe-haven US dollar to preserve its intraday gains. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair.

The nervousness over the worsening situation in Ukraine eased after the Russian negotiator said that they are interested to reach an agreement with Ukraine as soon as possible. This was evident from modest recovery across the global equity markets, which dented demand for traditional safe-haven assets, including the greenback. Apart from this, the diminishing odds for a 50 bps Fed rate hike move in March further held back the USD bulls from placing aggressive bets.

The recent geopolitical developments now seem to have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the global flight to safety, triggered a fresh leg down in the US bond yields and capped the USD. That said, an intraday pullback in crude oil prices undermined the commodity-linked loonie and failed to impress bullish traders, which helped limit any meaningful slide for the USD/CAD pair.

The mixed fundamental backdrop warrants some caution before placing aggressive directional bets as the focus remains on the Ukraine-Russia dialogue, starting today at the Belarusian-Ukrainian border. The incoming headlines will influence the broader market risk sentiment and drive demand for the safe-haven USD. Apart from this, traders will take cues from oil price dynamics for some short-term impetus around the USD/CAD pair amid absent relevant economic releases.

Technical levels to watch

The gold price surged to $1,930 as trading began this morning. It dropped back later to dip below the $1,900 mark again, however. As strategists at Commerzbank note, escalation of the Russia-Ukraine conflict generates high demand for the yellow metal.

Russian President Putin put deterrence forces at the highest threat level

“The US and the EU have imposed further – and this time tougher – sanctions on Russia. Not only have a number of commercial banks been excluded from the SWIFT payment system, but sanctions have now also been imposed directly on the Russian central bank.” 

“Russian President Putin has threatened the West with weapons of deterrence and put the country’s nuclear forces on high alert. And last but not least, the fighting in Ukraine persists. All of this is cause for concern and is prompting price fluctuations on the markets accordingly.”

“Gold is in demand as a safe haven in this environment, as is also evident from the ETF inflows. Besides ETF investors, we believe that speculative financial investors amplified the upswing in the gold price.”

USD/JPY is unfolding a pause in its up move after forming a double top at 116.35. The pair is staying relatively quiet near 115.50 and analysts at Société Générale expect USD/JPY to see further gains towards the 117.10/117.40 region.

Near-term support located at 113.45

“A large downside is not envisaged. Neckline at 113.45 is near-term support.”

“Defending this, the up move could persist towards a multiyear trend line at 117.10/117.40.”

EUR/PLN has rebounded swiftly after testing the lower limit of the channel since 2020 at 4.48. In case the pair surpasses the 4.74/75 area, additional gains should be witnessed towards 4.8050 and 4.85, economists at Société Générale report.

January peak of 4.6020 to provide support

“EUR/PLN is fast approaching the peak of 2021 at 4.74/4.75 which is also the upper band of the channel. This could be an interim resistance zone. However, a large downside is not envisaged; January peak of 4.6020 is likely to provide support near-term.”

“If the pair overcomes the hurdle at 4.74/4.75, next objectives could be at projections of 4.8050 and 4.85.”

GBP/USD fell toward 1.3300 but has managed to recover a portion of its daily losses. While above 1.350, cable could bounce towards 1.3565 and the recent peak of 1.3644, economists at Société Générale report.

Critical support aligns at the December low of 1.3160/1.3130

“GBP/USD is drifting towards downside projections of 1.3250. Defending this can lead to a bounce towards 1.3565 and recent peak of 1.3644.”

“December low of 1.3160/1.3130 is crucial support.”

EUR/CHF is now challenging the low formed in January at 1.0300. A break under this level would open up additional losses towards 1.0250 and 1.0200/1.0160, economists at Société Générale report.

Reclaiming last week's high of 1.0465 crucial for denoting a short-term bounce

“Daily MACD has been posting positive divergence, however, signals of a meaningful bounce are still lacking.”

“In case the pair establishes itself below 1.0300, the down move could extend further towards next projections at 1.0250 and 1.0200/1.0160.” 

“Reclaiming last week's high of 1.0465 will be essential for denoting a short-term bounce.”

• GBP/JPY once again attracted some dip-buying in the vicinity of the very important 200-DMA.
• Signs of stability in the markets undermined the safe-haven JPY and extended some support.
• The upside seems capped as the focus remains on developments surrounding the Ukraine crisis.

The GBP/JPY cross recovered over 100 pips from the daily low and held steady near mid-154.00s during the early part of the European session.

The cross continued showing some resilience and attracting fresh buying near a technically significant 200-day SMA amid receding safe-haven demand. The initial knee-jerk market reaction to the weekend developments surrounding the Ukraine crisis remained limited, which, in turn, was seen as a key factor that acted as a tailwind for the GBP/JPY cross.

The global risk sentiment took a hit after Russian President Vladimir Putin upped the ante and put nuclear-armed forces on high alert on Sunday. The market nervousness, however, eased a bit, at least for the time being, after the Russian negotiator said that they are interested to reach an agreement with Ukraine as soon as possible.

This, along with modest intraday recovery in the equity markets undermined traditional safe-haven assets, including the Japanese yen. That said, any optimistic move in the markets seems capped amid the risk of a further escalation in the conflict. Hence, the focus remains on the Ukraine-Russia dialogue, starting today at the Belarusian-Ukrainian border.

In the absence of any major market-moving economic releases from the UK, the latest geopolitical developments will play a key role in influencing the broader market risk sentiment. This, in turn, will drive demand for the safe-haven JPY and provide some impetus to the GBP/JPY cross, allowing traders to grab some short-term opportunities.

Technical levels to watch

GBP/USD has turned south following Friday's modest rebound. The pair is likely to face additional bearish pressure in case sellers drag it below 1.3340, FXStreet’s Eren Sengezer reports.

Pound recovery unlikely in current risk-averse environment

“As things currently stand, a diplomatic solution to the Russia-Ukraine war seems unlikely, suggesting that the dollar is likely to continue to be preferred over the British pound, at least in the near term.”

“GBP/USD seems to have met interim support at 1.3340. If that level turns into resistance, the pair could decline toward 1.3300 (psychological level) and 1.3280 (static level, multi-month low) afterwards.”

“On the flip side, 1.3400 (psychological level) aligns as initial resistance before 1.3430 (static level, 20-period SMA on the four-hour chart). A daily close above the latter is likely to attract buyers and open the door for an extended rebound toward 1.3500.”

• NZD/USD witnessed a bearish gap opening on Monday, albeit lacking follow-through selling.
• The worsening situation in Ukraine lifted the safe-haven USD and exerted downward pressure.
• Signs of stability in the markets helped the perceived riskier kiwi to attract some dip-buying.

The NZD/USD pair climbed back above the 0.6700 round-figure mark during the early European session and refreshed its daily high in the last hour.

The pair opened with a big bearish gap on the first day of a new week in reaction to the latest developments surrounding the Ukraine crisis. President Vladimir Putin upped the ante and put nuclear-armed forces on high alert on Sunday. This, in turn, boosted demand for the traditional safe-haven US dollar and weighed heavily on the perceived riskier kiwi.

The early decline, however, was quickly bought into near the 0.6670 area amid modest USD pullback from the daily high. The market sentiment stabilized a bit after the Russian negotiator said that they are interested to reach an agreement with Ukraine as soon as possible. This, along with sliding US Treasury bond yields, acted as a headwind for the greenback.

The worsening situation in Ukraine now seems to have dampened prospects for a more aggressive policy response by the Fed to contain stubbornly high inflation. Apart from this, the global flight to safety triggered a steep decline in the US bond yields, which kept a lid on any further gains for the buck and extended some support to the NZD/USD pair.

The attempted recovery, however, lacked bullish conviction as the focus remains on the Ukraine-Russia dialogue, which will start on Monday at the Belarusian-Ukrainian border. The incoming headlines will influence the broader market risk sentiment and the USD price dynamics, which, in turn, should provide a fresh impetus to the NZD/USD pair.

Technical levels to watch

The British pound has been holding up surprisingly well – given that it is normally more sensitive to financial developments than others. Analysts at ING highlight the levels to watch in the EUR/GBP pair.

0.8300-0.8400 looks the near-term range for EUR/GBP

“At least the Bank of England has set out its stall in reacting to stagflationary fears and today's surge in European natural gas will again edge the BoE towards hawkish positioning.”

“0.8300-0.8400 looks the near-term range for EUR/GBP, but a large leg lower in equities suggests 0.8400 could come under a lot of pressure.”

Economists at ING expect the dollar to stay in demand globally and keep watch for USD funding stress.

Flight to dollar quality/liquidity should continue

“What is clear is that commodity prices, (gas, oil, certain precious/industrial metals and softs such as wheat) will continue to rise and this supply shock should be a negative for activity and equities.”

“We will keep a close eye on the cross-currency basis swap market for any kinds of stress as well as seeing whether there is any increased demand for dollar liquidity at e.g. the ECB 7-day USD auction. Suffice to say that the dollar should continue to be the preferred safe haven in these unprecedented times.”

“DXY is heading back to the high at 97.70 and could break higher still.”

The Chinese renminbi is holding up exceptionally well and its credentials as a reserve currency continue to grow. Economists at ING expect this trend to continue.

Russia's ability to defend the rouble will turn to China

“Focus on Russia's ability to defend the rouble will turn to China, given that Russia has 13% of its FX reserves in the renminbi – does the CBR sell those if they are still available? There will also be a focus on whether Russia tries to secure FX swap lines with China although it remains very unclear that China would want to participate in such a venture given the risk of secondary sanctions.”

“For now, we continue to favour the renminbi as an alternative to the dollar and should focus return to macro, China's Two Sessions meeting later this week could re-focus the market on Chinese growth initiatives and a stronger renminbi.”  

Euro losses have been relatively well contained so far, though analysts at ING do believe that EUR/USD could fall further as investors fully assess the ramifications of weekend events.

Investors wonder whether Europe will be prepared to curtail imports of Russian oil and gas

“There have already been some reports of Europe looking at quotas/limits on Russian energy. Clearly, Europe would have to pay a lot higher prices for its energy under such a scenario and growth forecasts would have to be downgraded.”

“It is a big macro week for the euro given the release of February eurozone CPI on Wednesday (French CPI has already surprised on the upside). But given events to the east, we doubt stronger eurozone CPI/potential for ECB hawkishness will be enough to turn around an otherwise bearish bias for EUR/USD.”

“EUR/USD briefly retested the 1.1110/1120 lows overnight and barring any surprise break-through in Ukraine-Russia talks, EUR/USD looks biased to 1.10 this week.”

Ukraine conflict adds more uncertainty to the Bank of Canada (BoC) policy decision.  Economist at MUFG Bank still maintain a bullish outlook for the loonie but upside is less compelling in near-term.

Scaling back of BoC rate hike expectations ahead of Wednesday’s policy meeting

“There is more concern now that the higher price of oil will become more of a headwind for global growth going forward resulting in demand destruction. The Ukraine conflict is viewed as a stagflation shock. It creates a less favourable backdrop for oil currencies than if higher prices were primarily driven by the strengthening global economy.”

“The close proximity of the BoC’s upcoming policy meeting to the Ukraine conflict has increased uncertainty over the outcome. We believe that risks for Canadian rates are still skewed to the downside in the near-term. While it is not our base case scenario, there is a non-negligible risk that the BoC could delay raising rates as soon as this week. Even if the BoC hike rates the updated policy guidance could sound more cautious than current market pricing for just over 100bps of hikes by the summer.”

In response to recent geopolitical newsflow, many currencies are behaving in a typical ‘risk-off’ fashion. Any claim to safe-haven status for the euro is side-lined for now, given the considerable downward pressure it faces. What’s more, the traditional safe-haven US dollar and yen should strengthen against the ‘risk-on’ currencies, irrespective of rates, for now, economists at HSBC report.

Any claim to safe-haven status for EUR side-lined for now

“The EUR has been under considerable downward pressure, illustrating that its gradual transformation to a safe-haven currency still has some way to travel. The triggers for this current bout of risk aversion were a stern test of any safe-haven allure for the EUR, given the geographic proximity and Europe’s reliance on energy imports from the region.”

“The ‘risk-off’ playbook has unfolded, and it is not the time to take a more optimistic path yet. As such, the traditional safe-haven USD and JPY should strengthen against the ‘risk-on’ currencies, irrespective of rates for now.”

• GBP/USD witnessed a bearish gap opening on Monday amid resurgent USD demand.
• The worsening situation in Ukraine provided strong boost to the safe-haven greenback.
• A combination of factors capped the USD and assisted the pair to pare intraday losses.

The GBP/USD pair recovered a major part of its intraday losses and was last seen trading near the 1.3375 region during the early European session, down around 0.20% for the day.

The pair opened with a bearish gap on the first day of a new week amid a broad-based US dollar strength, bolstered by the weekend developments surrounding the Ukraine crisis. Western nations imposed new sanctions on Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system.

President Vladimir Putin upped the ante and put nuclear-armed forces on high alert on Sunday, fueling fears about a further escalation of the East-West conflict. This, in turn, triggered a fresh wave of the global risk-aversion trade, which forced investors to take refuge in traditional safe-haven assets and benefitted the buck.

That said, optimism over the Ukraine-Russia negotiations, which would reportedly start on Monday at the Belarusian-Ukrainian border, led to some stability in the financial markets. This, along with diminishing odds for a 50 bps Fed rate hike move in March, capped gains for the USD and extended support to the GBP/USD pair.

The worsening situation in Ukraine now seems to have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. Apart from this, the global flight to safety triggered a steep decline in the US Treasury bond yields and acted as a headwind for the greenback, at least for the time being.

In the absence of any major market-moving economic releases, either from the UK or the US, the market focus will remain on fresh developments surrounding the Russia-Ukraine saga. This, along with the US bond yields, will influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

EUR/USD has started the new week with a large bearish gap. As FXStreet’s Eren Sengezer notes, euro eyes fresh 20-month lows as tensions escalate.

USD to outperform its rivals in the risk-averse market environment

“Delegations from Russia and Ukraine are expected to meet for talks on the Ukraine-Belarus border. It's difficult to say whether or not sides will be willing to end the conflict and look for a diplomatic solution. In case that was to happen, EUR/USD could stage a decisive rebound. On the flip side, a lack of progress and a further escalation of the crisis could force the common currency to face additional selling pressure.”

“EUR/USD is facing interim resistance at 1.1200 (psychological level) ahead of 1.1260 (former support, static level) and 1.1300 (psychological level).”

On the downside, short-term support seems to have formed at 1.1150. In case a four-hour candle closes below that level, EUR/USD could extend its slide toward 1.1100 on its way to a fresh 20-month low.”

Strategists at TD Securities analyze Russia/Ukraine implications for Canada. For the loonie, it is all about risk, oil, and rates in the weeks ahead.

BoC needs to stay the course

“Higher commodity prices (should they materialize) will be a boon for producers and provinces with large energy sectors, but will also add to inflationary pressures facing consumers (particularly food and gasoline prices). Consequently, we do not think the invasion of Ukraine will alter the BoC's tightening path.”

“The USD and broader global risk assets are trading with a chunky premium, suggesting geopolitical stress could ebb in the weeks ahead. That would offer a nice runway for CAD, reflecting the positive tailwinds of improving sentiment, BoC lift-off, and positive terms of trade.”

“We eye a retest of 1.2450 in USD/CAD towards late Q1/early Q2.”

• USD/JPY reversed the weekly bearish gap opening amid a broad-based USD strength.
• The Russia-Ukraine crisis benefitted the USD’s status as the global reserve currency.
• A steep fall in the US bond yields capped any further gains for the buck and the pair.

The USD/JPY pair struggled to capitalize on its strong intraday recovery from the Asian session low and was last seen trading in the neutral territory, around mid-115.00s.

The pair opened with a bearish gap on the first day of a new week, albeit attracted some dip-buying near the 115.20-115.15 region amid a broad-based US dollar strength. The worsening situation in Ukraine turned out to be a key factor that boosted the greenback's status as the global reserve currency.

In fact, Western nations imposed new sanctions on Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system. President Vladimir Putin upped the ante and put nuclear-armed forces on high alert on Sunday, fueling fears about a full-blown East-West conflict.

That said, a slump in the US Treasury bond yields acted as a headwind for the buck and kept a lid on any meaningful upside for the USD/JPY pair, at least for now. Investors seem convinced that the latest geopolitical developments would force the Fed to adopt a less aggressive policy stance to combat high inflation.

This, along with the global flight to safety, triggered a steep decline in the US bond yields. The USD/JPY pair, so far, remained confined below Friday's swing high, around the 115.75 region. This makes it prudent to wait for strong follow-through buying before traders start positioning for any further move up.

In the absence of any major market-moving economic releases, the incoming headlines surrounding the Russia-Ukraine saga will influence the broader market risk sentiment. Apart from this, the US bond yields will drive the USD demand and provide impetus to the USD/JPY pair, allowing traders to grab some opportunities.

Technical levels to watch

Here is what you need to know on Monday, February 28:

The greenback is capitalizing on safe-haven flows at the beginning of the week amid escalating geopolitical tensions. Over the weekend, the US and the EU along with other Western nations decided to exclude some Russian financial institutions from the global payment system, SWIFT. More worryingly, Russian President Vladimir Putin put deterrence forces, including nuclear arms, at the highest threat level. Later in the day, delegations from Russia and Ukraine are expected to meet for talks on the Ukraine-Belarus border. The US economic docket will feature the Chicago Purchasing Managers Index and Dallas Fed Manufacturing Business Index data for February but geopolitical headlines are likely to continue to drive the market action.

Reflecting the risk-averse market atmosphere, the US Dollar Index is up 0.7% near 97.20 early Monday, the benchmark 10-year US Treasury bond yield is down more than 3% at 1.9% and US stocks futures are down between 1.5% and 2.25%. The barrel of West Texas Intermediate is rising more than 5% near $97.00. Meanwhile, Belarus will reportedly send troops to support the Russian invasion and Ukrainian President Zelenskyy told the British Prime Minister Boris Johnson on Sunday that the next 24-hours was going to be a crucial period for his country. 

The Russian rouble has reportedly lost more than 40% against the dollar in the interbank market early Monday. In response, the central bank of Russia announced that it hiked the benchmark interest rate to 20%. “The rate hike is designed to offset increased risks of rouble depreciation and inflation," the central bank in a statement.

EUR/USD opened with a big bearish gap and was last seen trading near 1.1150, where it was down 1% on a daily basis. 

GBP/USD fell toward 1.3300 in the early trading hours of the Asian session on Monday but managed to recover a portion of its daily losses. At the time of press, the pair was down 0.3% on the day at 1.3365.

After closing the previous week in the negative territory below $1,900, gold surged higher early Monday and touched a daily top of $1,931 before retreating toward $1,910 into the European session.

USD/JPY is staying relatively quiet near 115.50 as the safe-haven Japanese yen holds its ground against the greenback.

Bitcoin extended its rebound to $40,000 on Saturday but suffered heavy losses toward the end of the weekend. BTC/USD lost nearly 4% on Sunday and was last seen consolidating its losses near $38,000. Ethereum fell more than 5% on Sunday after closing the previous three trading days in the positive territory and it's posting small daily losses at $2,600. 

• EUR/USD began the week’s trading with downside gap, licks its wounds around daily lows off late.
• Horizontal area from early December limits recovery moves, bearish MACD favors sellers.
• Three-month-old descending trend line challenges sellers targeting the 1.1000 level.

EUR/USD struggles to extend the rebound from intraday low around 1.1160 as traders brace for Monday’s European session.

The major currency pair portrayed a downside gap to begin the week’s trading as the risk-aversion wave favored the US dollar.

Also keeping the EUR/USD bears hopeful is the pair’s sustained trading below a horizontal resistance zone from early December 2021, around 1.1220-25, as well as the bearish MACD signals.

That said, the pair’s latest weakness drives it towards a downward sloping trend line from late November 2021, around 1.1100.

However, a clear downside break of the stated support line will make the pair vulnerable to test the 1.1000 threshold, surrounding the 61.8% Fibonacci Expansion (FE) of the EUR/USD moves between October 2021 and February 2022.

Meanwhile, a corrective pullback beyond the 1.1225 immediate hurdle won’t be an open invitation to the EUR/USD bulls as a 12-day-old descending trend line, close to 1.1315 by the press time, adds to the upside filters.

Even if the pair rises past 1.1315, the double tops marked around 1.1480-85 will be the key hurdle for the quote.

EUR/USD: Daily chart

Trend: Further weakness expected

The Russian central bank (CBR) hikes the benchmark interest rate to 20%, in an unexpected move on Monday, as the rouble crashes to all-time-lows.

Bank of Russia said that “the rate hike is designed to offset increased risks of rouble depreciation and inflation.”

The central bank added that it is “ready for further action.”

CBR said that Governor Elvira Nabiullina will hold briefing at 1300 GMT later on Monday.

Meanwhile, Reuters reported that the Russian Finance Minister will decide whether to order exporters to sell forex revenues on market.

The Russian rouble has crashed over 40% so far this Monday, in the face of unprecedented Western sanctions against the country’s financial system over President Vladimir Putin’s invasion of Ukraine.

The rouble fell to a record low of 119.00 against the US dollar during one point before recovering to near 82.00 levels, where it now wavers.

British Chancellor Rishi Sunak along with Bank of England (BOE) Governor Andrew Bailey announced the UK government's intention to take further restrictive economic measures in response to the invasion of Ukraine by Russia by targeting the Central Bank of the Russian Federation (CBR).

Key takeaways

“To prevent the CBR from deploying its foreign reserves in ways that undermine the impact of sanctions imposed by us and our allies, and to undercut its ability to engage in foreign exchange transactions to support the Russian rouble.”

“The UK Government will immediately take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the CBR, the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation.”

Market reaction

The US dollar remains on the front foot amid broad risk-aversion while the S&P 500 futures shed over 2% so far this Monday.

• AUD/USD is likely to juggle in a range of 0.7150-0.7220 further.
• The 50 EMA is scaling above 200 EMA, which adds to the upside filters.
• The lower trendline placed from 0.7051 will continue to provide ground to the major.

The AUD/USD pair is looking to consolidate in a range of 0.7150-0.7220 for the upcoming trading sessions. On Monday, the major opened with a bearing opening gap around 0.7161 amid sour market sentiment.

On an hourly scale, AUD/USD has sensed support multiple times near the trendline placed from February 04 low of 0.7051, pegged at 0.7150. The major is scaling higher after finding pullbacks near the trendline placed. The 50-period and 200-period Exponential Moving Averages (EMA) have turned flat, which shows a lackluster activity going forward while the former one is above the latter, which shows that a bullish bias is still intact.

The Relative Strength Index (RSI) (14) has shifted in a range of 40.00-60.00 after a wild volatile swing from the reading around 74.00 corresponding to Wednesday’s high and around 20.00 on the lower side corresponding to the Thursday’s low.

Considering the filters and the ongoing price action, a range bound move is likely in the trading session going forward.

For an upside, bulls need to overstep 200-period EMA and Monday’s high, which coincides around 0.7194 and may send the major higher towards the trendline at 0.7218 and Friday’s high at 0.7237 respectively.

AUD/USD hourly chart

• Palladium prices snap two-day losing streak, seesaws around daily highs of late.
• Risk-aversion amplifies as Russian mercenaries brace for Ukraine President Zelenskyy’s assassination, nuclear arsenal stay on high alert.
• Top diplomats from Kyiv, Moscow agree for negotiations at Belarus-Ukraine border.

Palladium (XPD/USD) remains on the front foot around $2,500 as global markets sentiment turns grim during Monday’s Asian session.

The risk-off mood underpins the safe-haven for the US dollar while the XPD/USD tracks gold prices higher.

The latest risk-aversion wave takes clues from headlines concerning the fears of nuclear war and chatters that Russian mercenaries brace for Ukrainian President Zelenskyy’s assassination. On the same line are the fears of further supply crunch due to the strong Western sanctions on Moscow. Additionally, headlines from Belarus that the nation wants to renounce its non-nuclear neutral status also contribute to the risk-off mood and favor the precious metal prices.

However, readiness on the part of Ukraine and Russia to negotiate the terms of the ceasefire, near the Belarus border on Monday, keeps the traders hopeful of a halt in the week-long geopolitical tussles.

Against this backdrop, stock futures in the US and Europe dropped over 2.0% whereas the US 10-year Treasury yields also declined eight basis points (bps) to 1.90% by the press time. Further, the US Dollar Index (DXY) gains around 0.70% intraday at the latest.

Moving on, the US trade numbers for January and Chicago Purchasing Managers’ Index for February may direct intraday moves but major attention will be given to headlines from Russia and Belarus. Also important will be this week’s US Nonfarm Payrolls for February as the CME’s FedWatch Tool marks only 5% probabilities of a rate-lift in March at the latest.

Technical analysis

Although June 2021 bottom surrounding $2,465 guards immediate upside momentum of XPD/USD prices, a six-week-old support line near $2,355 limits the metal’s short-term declines. Also keeping the palladium buyers hopeful is the metal’s successful trading above the 200-DMA level surrounding $2,155.

• EUR/GBP seesaws around 50-SMA while renewing intraday low.
• MACD teases sellers, sustained trading below 200-DMA adds to the bearish bias.
• Short-term support line may test bears ahead of monthly low.

EUR/GBP remains on the back foot around intraday low, down 0.60% intraday around 0.8350 while heading into Monday’s European session.

The cross-currency pair refreshed weekly top on Friday but the risk-aversion wave portrayed a gap-down opening.

The downside momentum also takes clues from the pair’s inability to cross 200-SMA. Also favoring the pair sellers is the bear cross of the MACD and signal line, as well as a U-turn from 50% Fibonacci retracement of February 03-07 upside.

That said, the quote’s latest declines eye an upward sloping support line from February 03, around 0.8320 by the press time. However, the 0.8300 threshold and the monthly low near 0.8285 will challenge EUR/GBP bears afterward.

On the contrary, the 200-SMA and the latest swing high, respectively near 0.8365 and 0.8405, challenge short-term rebound of the USD/CHF prices.

Following that, the 0.8415 and the monthly high near 0.8480 will add to the upside filters for the air buyers.

EUR/GBP: Four-hour chart

Trend: Further weakness expected

• USD/TRY remains on the front foot around intraday top, reverses Friday’s losses.
• Risk-off mood underpins USD’s safe-haven demand, stock futures, yields are down.
• Ukraine, Russia brace for the key negotiations with looming fears of nuclear war, assassination of Kyiv’s leader.

USD/TRY seesaws around $14.08-10 after marking the upside gap to begin the week’s trading during Monday’s Asian session.

In doing so, the Turkish lira (TRY) pair portrays the market’s rush towards the US dollar, amid the broad risk-aversion wave. Also favoring the USD/TRY bulls are headlines suggesting further economic weakness of Turkey in 2022 due to high inflation and workers’ strikes.

The UK Times’ report suggests Russia ordered 400 mercenaries “to assassinate (Ukraine) President Zelenskyy and his government and prepare the ground for Moscow to take control,” gain major attention as far as the latest Russia-Ukraine news is concerned. Also important were weekend news suggesting Russian President Vladimir Putin’s order to their nuclear arsenal to stand on high alert, as well as the comments from European Commission President Ursula von der Leyen who said to the EU News that the European Union (EU) wants Ukraine in the bloc.

Elsewhere, Reuters' poll suggests an 11% GDP of Turkey in 2021 before easing to 3.5% in 2022. “Turkey's economy is expected to have expanded 11% in 2021 after bouncing back strongly from the pandemic, a Reuters poll showed on Tuesday, though it should cool off this year to 3.5% due to soaring inflation and a recent currency crisis,” said the survey.

In addition to the fears of easy GDP in 2022, workers’ strike in Turkey also weigh on the TRY prices. “Turkish workers are striking in numbers not seen since the 1970s to demand pay rises that enable them to buy a loaf of bread amid soaring inflation,” said The Telegraph.

Amid these plays, stock futures in the US and Europe remain red whereas the US 10-year Treasury yields also dropped nine basis points (bps) to 1.90% by the press time. Further, the US Dollar Index (DXY) gains around 0.85%, signaling the greenback’s demand.

Moving on, Turkey’s Q4 GDP and second-tier US data may decorate the calendar but major attention will be given to the talks between Moscow and Kyiv near the Belarus border.

Technical analysis

A clear upside break of the $13.93-95 horizontal area, comprising tops marked in November 2021 and January 2022, keep USD/TRY buyers hopeful to renew February 2022 high above $14.66.

One-month risk reversal (RR) of USD/RUB, a gauge of calls to puts, marked the biggest weekly jump in the last week since December 2014, per the latest options market data from Reuters.

Not only the weekly RR figure of +3.22 but the daily gauge of the options market also rose four times in the last six days, with the latest daily number being +2.70 during Monday’s Asian session.

It’s worth noting that the options market keeps a bullish bias for the USD/RUB but the overbought RSI conditions recently triggered the pair’s pullback from a record high marked on February 24 around 90.00.

That said, the quote takes rounds to 83.50 as traders await more clues on the Ukraine-Russia tussles ahead of the European session.

Read: USD/RUB eyes a gap-up on Monday ahead of Putin-Zelenskyy negotiations

• WTI looks to claim $100 on intensifying fears as Putin orders execution of Zelenskyy.
• Oil prices are underpinned by the collapse of Russia’s SWIFT international banking system.
• The DXY is heading north amid a fresh wave of uncertainty in the market.

West Texas Intermediate (WTI), futures on NYMEX, is eyeing $100 barricade as the war between Russia and Ukraine intensifies after the Russian leader Vladimir Putin's orders to assassinate the Ukrainian President Volodymyr Zelenskyy in Kyiv. To undertake the operation, the Kremlin has sent 400 Russian mercenaries, who will execute Zelenskyy.

The statement from Moscow came after the Western leaders announced weaponry aid to support Ukraine in response to the escalating Russian military activities. Under the weaponry aid, Australia will provide lethal military equipment to Ukraine while Canada will transfer an additional $25 million worth of defensive military equipment that may help Ukraine to counter the Russian response. Meanwhile, Japan PM Fumio Kishida said that they need to move quickly to freeze Russian assets.

The collapse of Russia’s SWIFT international banking infrastructure has set oil prices on fire. An already tight supply oil market with more squeezes in the turnover will keep boiling the oil prices.

The US dollar index (DXY) is also approaching higher amid the fresh wave of risk aversion on assassination of Zelenskyy.

Now, investors will focus on Wednesday’s OPEC meet whose main agenda will be on increasing the oil supply higher than the stipulated one in order to fix the demand-supply imbalance. Till then, bulls will remain in control and headlines from Russia-Ukraine will be the major driver.

• USD/CHF fades bounce off intraday low inside two-day-old bullish chart pattern.
• Firmer RSI, sustained trading beyond 200-SMA keeps buyers hopeful.
• One-month-old horizontal resistance area offers an extra hurdle to the north.

USD/CHF struggles to extend the previous week’s stellar gains, easing towards 0.9250 during early Monday morning in Europe.

In doing so, the Swiss currency (CHF) pair seesaws inside a bullish pennant chart pattern suggesting further upside of the quote until it stays beyond 0.9255 support.

Although a downside break of 0.9255 will negate the bullish chart pattern, the 200-SMA and February’s bottom, respectively around 0.9210 and 0.9150, will challenge USD/CHF bears.

Meanwhile, an upside clearance of 0.9285 will confirm the bullish pennant, theoretically activating an up-move targeting 0.9350.

However, the monthly horizontal area and January 31 swing high, close to 0.9285-90 and 0.9345 in that order, will challenge USD/CHF buyers during the anticipated run-up.

Overall, USD/CHF is likely to extend the previous week’s upside momentum as bulls seek a clear break of 0.9290.

USD/CHF: Four-hour chart

Trend: Further upside expected

• Gold prices grind higher around nine-month-old resistance area.
• Risk-off remains in full steam as fears of nuclear war, Zelenskyy’s assassination loom ahead of Kyiv-Moscow negotiation.
• DXY stays firmer as the NFP week begins, stock futures, yields drop. 
• Gold Weekly Forecast: Volatility to continue as investors stay on edge

Gold (XAU/USD) defends the week-start gap-up around $1,905, up 0.80% intraday amid the rush to risk-safety during Monday’s Asian session.

The yellow metal snapped a three-week uptrend even after rising to July 2021 high. However, the weekend headlines concerning the Russia-Ukraine tussles amplified the risk-off mood and portrayed an upside gap as the NFP week begins.

Among the latest headlines, the UK Times’ report suggesting Russia ordered 400 mercenaries “to assassinate (Ukraine) President Zelenskyy and his government and prepare the ground for Moscow to take control,” gain major attention. Also important were the comments from European Commission President Ursula von der Leyen who said to the EU News that the European Union (EU) wants Ukraine in the bloc while also adding, “They’re one of us.”

The weekend headlines were rather mixed as the West levied harsh sanctions on Moscow but President Vladimir didn’t step back and put nuclear arsenal on high alert, raising fears of a nuclear war. On the same line are the latest headlines from Belarus that the nation wants to renounce its non-nuclear neutral status. However, both the nation’s readiness for negotiations trigger the ray of hope.

While portraying the mood, the US Dollar Index (DXY) extends a three-week uptrend while the US 10-year Treasury yields print six basis points (bps) of a daily downside to 1.90% at the latest. Further, stocks in Asia-Pacific are also in the red whereas the S&P 500 Futures pare drop nearly 2.50% at the latest.

Moving on, the Russia-Ukraine talks will be in focus for near-term directions while US trade numbers for January and Chicago Purchasing Managers’ Index for February may direct intraday moves. It’s worth noting that the monthly US Nonfarm Payrolls (NFP) will be crucial this week as traders slow down on their hopes of a 0.50% rate hike in March.

Technical analysis

Gold failed to provide a decisive upside break of a seven-month-old rising channel, despite marking an uptick to the September 2020 highs during the last week.

The pullback move gains support from the RSI’s retreat from the overbought territory and receding bullish bias of the MACD, which in turn challenges the recent upside moves of the XAU/USD prices.

However, the November 2021 peak of $1,877 and a three-week-long rising trend line near $1,875 restricts the bullion’s immediate downside.

Gold: Daily chart

Also acting as nearby support for gold prices is the confluence of the 100-SMA and a monthly ascending trend line near $1,865.

Meanwhile, the 50-SMA level surrounding $1,895 and the $1,900 threshold will challenge gold’s short-term recovery.

Gold: Four-hour chart

Following that, a broad resistance area between $1,911 and $1,915, comprising multiple levels marked since May 2021 and the aforementioned channel’s upper line, will be crucial for XAU/USD bull’s re-entry.

In a case where gold buyers remain dominant past-$1,965, a run-up towards January 2021 near $1,960 and the latest swing top near $1,975 can’t be ruled out.

To sum up, gold is likely to weaken further but the buyers aren’t out of the woods yet. Hence, any recovery beyond $1,915 could recall the bulls.

• EUR/USD is likely to plunge near 1.1108 on weaponry aid from the Western leaders.
• Belarus is preparing to join Russia, bringing in a fresh wave of risk-aversion.
• The recession situation in Europe has underpinned the greenback against the euro.

The EUR/USD pair is likely to retest fresh 2022 lows near 1.1100, as the tensions between Russia and Ukraine escalate after the Washington Post has reported that Belarus is likely to join Russia's invasion. The former is preparing its military troops to send them to support the Russian military as soon as on Monday, a US administration official cited.

Meanwhile, the Australian government announced on Monday that, they will provide lethal military equipment to Ukraine in response to Russian military activity last week.

Apart from Australia, the Canadian Foreign Affairs Minister Melanie Joly also announced that their administration will provide an additional $25 million worth of defensive military equipment to Ukraine.

No one could deny the fact that the Western leaders are favoring Ukraine and providing weaponry aid to support them indirectly against Putin’s decision of destruction in Ukraine. Although the other nations are supporting Ukraine, the overall picture of the war between Moscow and Kyiv is escalating further. This may advocate the situation of recession in Europe and the EU (European Union) will require resorting to cautioned fiscal policies. Also, this has weakened the euro against the greenback.

The US dollar index (DXY) looks to reclaim the last week’s high at 97.64 amid broader improvement in safe-haven appeal. Moreover, Anticipation ahead of Wednesday’s testimony from the Federal Reserve (Fed) Chair Jerome Powell is keeping the bulls in control.

The monthly Harmonized Index of Consumer Prices (HICP) from Eurostat will be one of the major events for investors to keep under the radar alongside the geopolitical developments.

• GBP/USD holds in the bearish territory following the opening gap.
• Ukraine crisis weighing on risk-currencies as US dollar firms. 

GBP/USD is under pressure at the start of the week, down some 0.44% at the time of writing. The price, however, is off the lows that were printed following an opening gap of over 100 pips to 1.3307. Risk-off is the theme with US futures and Asian share prices in a sea of red as the Ukraine tensions mount.

News that Russian President Vladimir Putin has given the nuclear readiness order, saying “top officials in NATO’s leading countries have been making aggressive statements against our country,” according to a report from Russian state news operator TASS, has weighed on sentiment.

There were harsh sanctions imposed by Western nations on Russia over this weekend for the invasion of Ukraine. On Saturday, NATTO moved to block certain Russian banks' access to the SWIFT international payment system in further punishment for the nation's military assault against Ukraine.  Markets are now waiting in anticipation of a possible peace take between the two nations that could happen as soon as Monday morning.

Meanwhile, there will be more central bank speak this week. The Bank of England''s Saunders, Mann, Tenryro, and Cunliffe are all due to speak. Last week, Bank of England policymaker Mann highlighted high inflation expectations as a reason for voting for a 50 basis point interest rate rise earlier this month.

The Bank of England Governor Andrew Baileyinformed lawmakers he saw clear risks that inflation could overshoot their own forecasts but urged investors not to get too carried away about the likely scale of rate increases. Investors are fully pricing in another 25 basis point rate increase at the central bank’s next meeting on March 17 with another hike fully priced at the subsequent meeting in May.

The UK Times is reporting on Monday, “more than 400 Russian mercenaries are operating in Kyiv with orders from the Kremlin to assassinate President Zelenskyy and his government and prepare the ground for Moscow to take control.”

Additional takeaways

“The Wagner Group, a private militia run by one of President Putin’s closest allies and operating as an arm-length branch of the state, flew in mercenaries from Africa five weeks ago on a mission to decapitate Zelensky’s government in return for a handsome financial bonus.”

“Information about their mission reached the Ukrainian government on Saturday morning and hours later Kyiv declared a 36-hour “hard” curfew to sweep the city for Russian saboteurs, warning civilians that they would be seen as Kremlin agents and risked being “liquidated” if they stepped outside.”

Market reaction

Investors remain on the edge, digesting these above headlines, as the appetite for riskier assets is absent while the US dollar emerges as a clear winner.

• Asian shares under pressure as Ukraine crisis tensions mount

• USD/INR stays on the front foot around nine-week high.
• Sustained bounce off 10-DMA, bullish MACD signals favor buyers.
• Upper line of the megaphone restricts immediate advances, 200-DMA acts as additional downside filter.

USD/INR prints stellar gains around 75.70, despite the recent retreat from the intraday top during early hours of Indian trading session on Monday.

In doing so, the Indian rupee (INR) pair remains around the highest levels seen during late December while also staying inside a megaphone chart pattern suggesting a further widening of the gradual upside momentum.

The bullish bias also takes clues from the upbeat MACD signals and the pair’s U-turn from the 10-DMA, currently around 75.05.

Even if the quote drops below 75.05, the 75.00 threshold and support line of the stated megaphone near 74.50 will challenge USD/INR bears. Also acting as the key support is the 200-DMA level surrounding 74.40.

Alternatively, the recent high of 75.90 and the 76.00 round figure may restrict short-term upside moves of the USD/INR pair ahead of the megaphone’s resistance line, around 76.10 by the press time.

In a case where the USD/INR bulls cross the 76.10 hurdle, the late 2021 peak surrounding 76.50 will gain the market’s attention.

USD/INR: Daily chart

Trend: Further upside expected

• Ukraine crisis is roiling markets are the start of the week.
• Nikkei share average (NI225) was down 0.31%. The Hang Seng is down 1.31%. 

US futures and Asian share prices are in a sea of red as the Ukraine tensions mount following the news that  Russian President Vladimir Putin has given the nuclear readiness order. He said “top officials in NATO’s leading countries have been making aggressive statements against our country,” according to a report from Russian state news operator TASS.

harsh sanctions imposed by Western nations on Russia for its invasion of Ukraine are being weighed by markets, with the safe-havens, such as gold, up and risker bets such as stocks, down. By 0320 GMT, the Nikkei share average (NI225) was down 0.31% after falling as much as 0.8% earlier in the day. The Hang Seng is down 1.31%. The Shanghai Composite is not trading.

NATO on Saturday moved to block certain Russian banks' access to the SWIFT international payment system in further punishment of Moscow as it continues its military assault against Ukraine.  Meanwhile, there is a glimmer of hope in the news that the Ukrainian president's office said negotiations with Moscow without preconditions would be held on Monday morning.

Analysts at Goldman Sachs make a case for rate hikes at all seven remaining Fed meetings this year, in the face of soaring inflation.

Key quotes

“We are raising our core PCE inflation forecast to 3.7% at end-2022 (vs. 3.1% previously) and 2.4% at end-2023 (vs. 2.2%).”

“Accounting for a wider CPI-PCE gap, this implies 4.6% headline CPI inflation at end-2022 and 2.9% at end-2023.”

“A very high inflation path in 2022 should make an easy case for steady rate hikes at all seven remaining FOMC meetings.”

“In light of our higher inflation forecast for 2023, we now expect four additional quarterly hikes next year (vs. three previously), resulting in a slightly higher terminal funds rate of 2.75-3%.”

• NZD/USD seesaws around 0.6680 ahead of the outcome of the Putin-Zelenskyy negotiations.
• The risk-sensitive assets find support as ultra-hot volatility slightly cools off.
• The DXY is approaching north on expectations of the Fed’s tightening monetary policy.

The NZD/USD pair has bounced superficially after a bearish gap opening on Monday around 0.6665, as the risk appetite slightly expanded on the expected Putin-Zelenskyy negotiations meet.

Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy have agreed to take negotiations without any preconditions. Well, the major outcome of the event is not the agreement of the nations but the unavailability of preconditions, which seems to provide fresh ground for the negotiation chatter. This has cheered the investors, cooling off the ultra-hot volatile environment.

On that, Ukrainian President Volodymyr Zelenskyy said "I do not really believe in the outcome of this meeting, but let them try, so that later not a single citizen of Ukraine has any doubt that I, as president, tried to stop the war,". Maybe the outcome won’t be material for the risk-perceived assets but it has trimmed the soaring uncertainty for a while.

Meanwhile, the US dollar index (DXY) has resumed marching north after a bullish opening gap on Monday. The DXY is trading 97.34, 0.84% above the last weeks’ closing price, at the time of writing. The overall negative tone of the market has underpinned the safe-haven greenback. Moreover, the expectations of an aggressive tightening policy by the Federal Reserve (Fed) is keeping the American dollar broadly underpinned. 

Apart from the headlines of the Russia-Ukraine war, investors will also focus on monthly Manufacturing PMI by the US Institute for Supply Management (ISM) data, which is due on Tuesday while the kiwi docket will report the Wednesday’s Building Permits data by the Statistics New Zealand.

• EUR/GBP is in the hands of the bears at the start of the week.
• Ukraine crisis is driving risk over a cliff as tensions escalate. 

EUR/GBP is lower at the start of the week, caught up in the risk-off flows during the open that saw the safe-haven currencies gain following the latest headlines surrounding Russia's invasion of Ukraine.

Missiles pounded the Ukrainian cities once again over the weekend as Russian forces pressed their advance. Western powers' moves to cut some Russian banks from the SWIFT global payments system and freeze the Bank of Russia's reserves have resulted in Russian president Vladimir Putin giving the nuclear readiness order. He said “top officials in NATO’s leading countries have been making aggressive statements against our country,” according to a report from Russian state news operator TASS.

Meanwhile, Ukrainian President Volodymyr Zelensky confirmed to Sky News that the two sides would hold the talks on the border of Ukraine and Belarus, where some of the Russian troops invading his country had been held. 

Meanwhile, last week, Bank of England policymaker Catherine Mann highlighted high inflation expectations as a reason for voting for a 50 basis point interest rate rise earlier this month. The Bank of England Governor Andrew Bailey also told lawmakers he saw clear risks that inflation could overshoot their own forecasts but urged investors not to get too carried away about the likely scale of rate increases. Investors are fully pricing in another 25 basis point rate increase at the central bank’s next meeting on March 17 with another hike fully priced at the subsequent meeting in May.

There will be more central bank speak this week. The BoE's Saunders, Mann, Tenryro, and Cunliffe are all due to speak, while European Central Bank Minutes from the February meeting could shed light on the clear disconnect between the policy statement and the presser.

The risk sentiment took a fresh knock after the Washington Post (WaPo) reported on Monday, Belarus is likely to join Russia's invasion of Ukraine.

Belarus is preparing to send soldiers into Ukraine in support of the Russian invasion in a deployment that could begin as soon as Monday, WaPo reports, citing a US administration official.

“Excluding Russian banks from SWIFT shows determination to cause maximum impact vs. Russia,” a top diplomat from the Japanese Finance Minister, Masato Kanda, said on Monday.

Additional quotes

Separately, Japan’s Chief Cabinet Secretary Hirokazu Matsuno said, “SWIFT sanctions are arranged to incur maximum costs to Russia while watching effects on financial markets.”

Matsuno said that he “was asked to join in blocking Russia from SWIFT by western countries, currently working with them to make swift measures effective.”

“Will cooperate with international society including G7,” Matsuno said while declining to comment on details when asked about sanctions on Russian central bank.

• USD/JPY Price Analysis: Retreats from monthly horizontal hurdle near 115.50

• AUD/JPY remains on the back foot around intraday low after downbeat start to the week.
• Convergence of 200-SMA, 50% Fibonacci retracement appears tough nut to crack for bears.
• Risk-aversion, failures to cross two-month-old resistance line favor sellers.

AUD/JPY licks its wounds near 82.95 during Monday’s Asian session, down 0.70% intraday after portraying a 40-pip gap-down to begin the week’s trading.

While sour sentiment weighs on the latest AUD/JPY prices, the cross-currency pair’s failures to surpass a downward sloping resistance line from early January joins receding bullish bias of the MACD to keep sellers hopeful.

That said, the 61.8% Fibonacci retracement (Fibo.) of January’s downside, near 82.80, challenges the immediate downside of the AUD/JPY prices.

Following that, a joint between the 200-SMA and 50% Fibo., around 82.30, will precede the short-term rising trend line from February 04, near 82.10, to challenge the pair’s further weakness.

On the flip side, the 83.00 threshold and the recent swing high near 83.60 limit the quote’s short-term recovery.

However, AUD/JPY bulls remain worried until the quote rises past an eight-week-long resistance line, around 83.80 by the press time.

AUD/JPY: Four-hour chart

Trend: Further weakness expected

In response to the Russian assault on Ukraine last week, Reuters reports the following efforts undertaken by Australia, Canada and Japan to help the Ukrainians resist the Russian aggression.

The Australian government announced Monday, they will provide lethal military equipment to Ukraine.

The two largest media companies in Canada are dropping Russian state TV channel RT from their cable offerings.

Adding to it, Canada will send an additional $25 million worth of defensive military equipment to Ukraine, Foreign Affairs Minister Melanie Joly said.

Meanwhile, Japan PM Kishida said that they need to move quickly to freeze Russian assets.

The risk sentiment remains sour after the discouraging developments over the weekend, with Russia contemplating nuclear deterrence after the West banned a number of Russian banks from the SWIFT payment.

The S&P 500 futures is stabilizing at lower levels, down 2.51% on the day.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

With the looming uncertainties over the Russia-Ukraine crisis, despite the latest agreement for negotiations, oil analysts revise up their forecasts on fears of supply crunch due to Western sanctions on Moscow.

That said, Goldman Sachs (GS) mentioned in its latest analysis, “We expect price of consumed commodities that Russia is key producer of to rally from here.”

“This includes oil, European gas, aluminum, palladium, nickel, wheat & corn,” adds GS. The bank also said, “For oil, this represents $110/bbl to $120/bbl short-term price upside should 2 to 4 mb/d of demand destruction be required to compensate for commensurate 1-month loss of Russian exports."

On the same line were the latest projections for oil from Citibank as it expects tighter global oil inventories in Q1 amid stronger demand and weaker supply.

In doing so, Citibank revises up their Q1 2022 oil price forecasts by $12 to $91 despite expecting further weakness for oil prices through the year to reach $60s by year-end.

“Expect a very well-supplied oil market to emerge by 2h’22, if not 2q’22. this should blunt prices even with ongoing geopolitical risks,” adds Citibank.

Read: WTI leaps 7% towards the $99 mark on Russia-SWIFT ban, nuclear threats

• AUD/USD began the week’s trading with a downside gap, fades bounce off intraday low at the latest.
• Australia Retail Sales outlawed market expectations of 0.4% growth in January.
• Risk appetite remains sour as Russia-Ukraine braces for negotiations with nuclear guns in the pocket.
• Qualitative catalysts, US NFP will be crucial, second-tier US data may entertain intraday traders.

AUD/USD remains on the back foot around 0.7180, down 0.72% intraday following the 70-pip gap-down to begin the week’s trading on Monday. The pair’s latest weakness could be linked to the looming fears of major geopolitical concerns surrounding Russia and Ukraine. In doing so, the risk barometer pair ignores firmer macroeconomic data from Australia.

Australia’s Retail Sales rose by 1.8% MoM in January versus 0.4% expected and -4.4% prior. On the same line are the Pacific nation’s figures for TD Securities Inflation for February, 0.5% and 3.5% MoM and YoY versus 0.4% and 2.8% respective priors. Furthermore, Company Gross Operating Profits grew in Q4 to 2.0%, versus expectations of 0.3% growth and 4.0% previous readouts.

Read: Aussie Retail Sales: +1.8% vs +0.4% expected

Even so, the sour sentiment exerts downside pressure on the risk-barometer pair. That said, news concerning Russia-Ukraine geopolitical have been the major challenge to the market’s risk appetite.

The weekend headlines were rather mixed as the West levied harsh sanctions on Moscow but President Vladimir didn’t step back as put the nuclear arsenal on high alert, raising fears of a nuclear war. On the same line are the latest headlines from Belarus that the nation wants to renounce its non-nuclear neutral status.

Additionally weighing on the AUD/USD prices are the latest comments from European Commission President Ursula von der Leyen seemed to have challenged the market’s cautious optimism. The regional leader recently said to the EU News that the European Union (EU) wants Ukraine in the bloc while also adding, “They’re one of us.”

The risk-off mood, however, has recently been challenged by the headlines conveying the Moscow-Kyiv talks at the Belarus border.

While portraying the mood, the US Dollar Index (DXY) extends a three-week uptrend while the US 10-year Treasury yields print six basis points (bps) of a daily downside to 1.92% at the latest. Further, stocks in Asia-Pacific are also in the red whereas the S&P 500 Futures pare drop nearly 2.0% at the latest.

Looking forward, headlines concerning the Russia-Ukraine talks will be in focus while US trade numbers for January and Chicago Purchasing Managers’ Index for February may offer additional directions to the AUD/USD prices. It’s worth noting that the monthly US Nonfarm Payrolls (NFP) will be crucial this week as traders slow down on their hopes of a 0.50% rate hike in March.

Read: The week ahead: US non-farm payrolls, Bank of Canada, ITV, Darktrace, Aviva results

Technical analysis

Although 21-DMA guards the pair’s immediate downside around 0.7160, AUD/USD bulls remain unconvinced until the quote stays below the previous support line from late January, around 0.7190 by the press time. Also challenging the AUD/USD buyers is the 100-DMA level surrounding 0.7240.

• Bulls need to cross 200-EMA as an upside filter to claim 130.30.
• The cross had opened around 61.8% Fibonacci retracement at 129.16.
• The higher highs and higher lows structure is intact but awaits more upside filters ahead.

The EUR/JPY has been following the primary component of Dow Theory by sustaining above Friday’s low of 128.73 despite the bearish opening gap on Monday. The cross continues to form the higher high and higher low structure but awaits more filters ahead.

EUR/JPY has opened around 61.8% Fibonacci retracement (placed between Fridays’s low and high at 128.73 and 130.30) at 129.16 on Monday. This usually acts as major support for an asset after a correction. Investors often consider these pullbacks as a bargain buy. The cross is trading in a narrow range of 129.15-129.43 and is hinting for a squeeze in the volatility bands.

On a 15-minute scale, EUR/JPY is trading below 50-period and 200-period Exponential Moving Averages (EMA), despite a ‘higher high and higher low’ structure, which signals for a lackluster move going forward. The Relative Strength Index (RSI) (14) has slipped sharply near 30.00 after trading in a bullish range of 60.00-40.00.

Bulls are paying attention on 200-EMA at 129.51, as its violation will send the cross higher towards Friday’s high at 130.30 and Wednesday’s high at 130.71 respectively.

On the flip side, bulls can lose grip it the spot slips below Monday’s low at 129.15 towards Friday’s low at 128.73, followed by Thursday’s low at 127.92.

EUR/JPY 15-minute chart

• USD/CAD is on firm grounds as the start of the week. 
• Bears could be out of luck if the daily chart's support continues to hold up.

USD/CAD is firm in the open this week as risk-off markets favour the US dollar to commodity currencies. The focus is on the Ukraine crisis that has driven forex on Monday as tensions rise. The following is an illustration of the weekly and daily market structure and offers a bullish bias while within the bulls trend still.

USD/CAD weekly chart

From a weekly chart perspective, the price is teed up for a continuation to the upside as the daily support continues to hold off the bears. 

USD/CAD daily chart

The daily chart shows the price as being trapped between the 1.2630s and 1.2870s with the bias tilted to the upside considering the bull trend.

• DXY kick-starts the key week with an upside gap of nearly 50 pips.
• Russia, Belarus trigger nuclear-war fears, EU wants Ukraine to join the bloc.
• Kyiv-Moscow talks near Belarus border will be crucial.
• NFP will be important as rate-hike probabilities ease.

Broad risk-aversion wave helped the US Dollar Index (DXY) to print a strong start to the key week, with an upside gap of nearly 50 pips to 97.15 during Monday’s Asian session.

The DXY rose to the eight-month high in the last week as sour sentiment pushed traders towards the traditional risk-safety. The same helped the greenback gauge to print a three-week uptrend by the end of Friday, up 0.62% intraday by the press time.

Having witnessed the Russian invasion of Ukraine, the weekend headlines were rather mixed as the West levied harsh sanctions on Moscow but President Vladimir didn’t step back as put nuclear arsenal on high alert, raising fears of a nuclear war. On the same line are the latest headlines from Belarus that the nation wants to renounce its non-nuclear neutral status.

Additionally weighing on the risk appetite are the latest comments from European Commission President Ursula von der Leyen seemed to have challenged the market’s cautious optimism. The regional leader recently said to the EU News that the European Union (EU) wants Ukraine in the bloc while also adding, “They’re one of us.”

The risk-off mood, however, has recently been challenged by the headlines conveying the Moscow-Kyiv talks at the Belarus border.

Against this backdrop, the US 10-year Treasury yields print six basis points (bps) of a daily downside to 1.92% whereas S&P 500 Futures pare intraday losses, down 1.75% on a day.

Read: Equities forge ahead on Friday despite Ukraine, while Treasuries and the dollar return to status quo

While geopolitical headlines are likely to become the key catalyst for markets, monthly prints of the US jobs report for February will be crucial as well. The reason could be linked to the recently mixed comments from the Fed policymakers as well as a retreat in the hopes of a 0.50% rate hike in March. That said, the CME’s FedWatch Tool marks only 5% probabilities of a rate-lift in March at the latest.

Read: The week ahead: US non-farm payrolls, Bank of Canada, ITV, Darktrace, Aviva results

Technical analysis

Unless staying beyond the late 2021 tops surrounding 96.90, the US Dollar Index remains on the way to challenge January’s peak around 97.45. However, overbought RSI may test the DXY bulls around the latest high of 97.73.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3222 vs. the estimate of 6.3196 and the close of 6.3170.

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.

• USD/JPY bounces off intraday low, seesaws around short-term key resistance area.
• Crucial SMAs, firmer RSI can keep buyers hopeful amid sluggish trading.
• Clear break of five-week-old rising trend line adds strength to the bearish bias.

USD/JPY struggles for clear directions around 115.55 amid Monday’s Asian session, after stepping back from one-month-old horizontal resistance the previous day.

In addition to the aforementioned horizontal resistance area, around 115.70-90, the pair’s sustained trading below the previous support line from January 24, at 115.85 by the press time, also keeps USD/JPY sellers hopeful.

Hence, the quote’s further weakness towards the 100-SMA level of 115.30 can’t be ruled out.

However, a convergence of the 200-SMA and 50% Fibonacci retracement (Fibo.) of January-February upside, at 114.90, will challenge USD/JPY bears afterward.

Should USD/JPY bears dominate past 114.90, the monthly low of 114.15 will be in focus.

On the contrary, a clear upside break of 115.90 won’t hesitate to poke the monthly high of 116.33.

Though, tops marked in January around 116.35, will add strength to the 116.30-35 resistance zone, a break of which will propel the quote towards the late 2016 peak near 118.70.

USD/JPY: Four-hour chart

Trend: Further weakness expected

• Silver prices grind higher after four-week uptrend, recently easing from daily top.
• Market sentiment dwindles amid anxiety over Kyiv-Moscow negotiations.
• Western sanctions, Russia’s nuclear alarm keep traders on the edge, EU’s von der Leyen hints at Ukraine’s inclusion in the bloc.
• Headlines surrounding Russia, Ukraine remain as crucial drivers, second-tier data may entertain traders as well.

Silver (XAG/USD) holds onto the week-start gap-up near $24.50, up 0.90% intraday during Monday’s Asian session. The bright metal rose during the last four consecutive weeks as global markets rushed towards the precious metals in search of risk-safety due to the Russia-Ukraine crisis.

The risk-off mood, however, has recently been challenged by the headlines conveying the Moscow-Kyiv talks at the Belarus border. However, the latest comments from European Commission President Ursula von der Leyen seemed to have challenged the market’s cautious optimism. The regional leader recently said to the EU News that the European Union (EU) wants Ukraine in the bloc while also adding, “They’re one of us.”

Also challenging the market sentiment, as well as fueling the XAG/USD prices, are the news suggesting Belarus’ readiness to reject the status as a non-nuclear nation and Russian President Vladimir Putin’s putting of nuclear deterrence forces on high alert. It’s worth noting that fears over Western sanctions on Moscow, including the major ones relating to the SWIFT payment system and Russian central bank, also keep the silver buyers hopeful.

Amid these plays, the S&P 500 Futures drop around 2.0% while the US 10-year Treasury yields mark an eight-pip fall near 1.90% by the press time.

Moving on, headlines concerning the Russia-Ukraine talks will be in focus while US trade numbers for January and Chicago Purchasing Managers’ Index for February may offer additional directions to the silver prices.

Technical analysis

Silver prices remain firmer inside a three-week-old ascending trend channel, between $24.30 and $25.30 at the latest. That said, January’s high near $24.70 acts as the immediate upside barrier for the XAG/USD prices.

Australian January Retail Sales arrived +1.8% for the month vs a Reuters poll of +0.4%.

AUD/USD update

The price did not move on the data, instead is being driven by external factors. AUD/USD has been in a range of between 0.7157 and 0.7189 at the start of the week, recovering from a large opening gap and now idles the 0.7180s. However, the path of least resistance could be to the downside, as illustrated here:

• AUD/USD Price Analysis: A trip into the 0.7090's could be on the cards

About Retail Sales

The primary gauge of Australia’s consumer spending, the Retail Sales, is released by the Australian Bureau of Statistics (ABS) about 35 days after the month ends. It accounts for approximately 80% of total retail turnover in the country and, therefore, has a significant bearing on inflation and GDP.

This leading indicator has a direct correlation with inflation and the growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.

• GBP/USD picks up bids to fill the week-start gap.
• 61.8% Fibonacci retracement guards immediate upside ahead of previous support line.
• Bearish MACD, descending RSI line joins sustained trading below key support to favor sellers.
• 100-DMA adds to the upside filters, 78.6% Fibonacci retracement level lures bears.

GBP/USD struggles to full the 60 pips of the bearish gap around 1.3370 during the initial Asian session on Monday.

GBP/USD snapped a three-week uptrend by the end of Friday’s trading as the market’s risk-off mood favored the US dollar bulls.

Apart from the fundamentals that favor the GBP/USD bears, a clear downside break of an ascending trend line from December 08, 2021, around 1.3480 by the press time, also hints at the pair’s further declines.

That said, the 61.8% Fibonacci retracement (Fibo.) of December-January upside, near 1.3380, restricts the pair’s immediate recovery ahead of the 50% Fibo. level and the support-turned-resistance line, respectively around 1.3450 and 1.3480.

Even if the GBP/USD buyers manage to cross the 1.2480 hurdle, they need to provide a daily closing beyond the 100-DMA level surrounding 1.3500 to recall the buyers.

Meanwhile, the 1.3300 round figure may offer immediate support to the pair, a break of which will recall GBP/USD bears targeting the 78.6% Fibonacci retracement level near 1.3280.

In a case where GBP/USD remains bearish past 1.3280, the December 2021 low near 1.3160 will be in focus.

GBP/USD: Daily chart

Trend: Further weakness expected

Belarus will renounce its non-nuclear and neutral status, allowing Russia to place nuclear weapons on its territory, as a result of the referendum held today.

The agencies cited the Belarus central elections commission as saying 65.2% of those who took part voted in favour. 

The West has already said it will not recognise the results of the referendum.

"If you (the West) transfer nuclear weapons to Poland or Lithuania, to our borders, then I will turn to Putin to return the nuclear weapons that I gave away without any conditions," Lukashenko said.

This follows the news on Sunday whereby Russian President Vladimir Putin dramatically escalated East-West tensions by ordering Russian nuclear forces put on high alert.

Citing “aggressive statements” by NATO and tough financial sanctions, Putin made the move to increase the readiness of Russia’s nuclear weapons which has put markets on edge at the start of the week.

• USD/RUB sees a bullish opening gap as the war situation intensifies after Putin's nuclear threat.
• Putin-Zelenskyy negotiations without preconditions have set a ground zero for fresh talks.
• The risk-sensitive assets have failed to capitalize on the expected negotiations between Moscow and Kyiv.

The USD/RUB is set to open with a bullish gap, as the Russia-Ukraine war intensified post the announcement of a nuclear attack by Russian leader Vladimir Putin.

This announcement of a nuclear threat by Moscow has spooked the investors. The move has established a negative impulse in the market. The statement has been called ‘totally unacceptable by US President Joe Biden and seems escalating the geopolitical tensions further. The market participants are hoping for more sanctions by the US and its allies on Russia.

Earlier, US President Joe Biden detached Russia from the global financial ecosystem, which collapsed the Russian international banking infrastructure. This had also paused the foreign investment flows. Moreover, the Russian citizens queued outside the ATMs for withdrawals in case of any liquidity crunch. Adding to that, the US also imposed restrictions on technology imports by Russia. Well, the Western allies were not left with any other option but to cripple the Russian economy after it stepped up its assault in Ukraine.

The United States (UN) estimates that the invasion of Ukraine has already created about 400,000 Ukrainian refugees in the last four days. And, the nuclear attack may worsen the Ukraine crisis further.

Meanwhile, the headlines of expected negotiations between the Kremlin and Ukraine have failed to provide a decent ground to the risk-sensitive assets. The nations are ready to negotiate without any preconditions, which seem that they want a ground zero for fresh negotiations.

• EUR/USD licks its wounds after a negative start to the week.
• Hopes of peace regain as Russia-Ukraine negotiations will be held near Belarus-Ukraine border.
• Moscow’s high alert to nuclear stations, Western sanctions on Russia keep traders on their toes.
• Risk catalysts keep the driver’s seat, second-tier US data may offer intermediate moves.

EUR/USD consolidates intraday losses around 1.1180, following a week-start downside gap of nearly 100-pips. The major currency pair refreshed yearly low and also marked a three-week downtrend during the last week as Russia invaded Ukraine.

The risk-aversion wave got intense during the weekend as the West united against Moscow and pushed some of the Russian banks out of the SWIFT global financial settlement system, also levied sanctions on Russia’s central bank. On the same line was the news that Russian President Vladimir Putin puts nuclear deterrence forces on high alert.

On the positive side, headlines conveying the Ukraine-Russia peace talks, at the Belarus-Ukrainian border, may have probed the EUR/USD bears. However, the latest comments from European Commission President Ursula von der Leyen seemed to have challenged the market’s cautious optimism. The regional leader recently said to the EU News that the European Union (EU) wants Ukraine in the bloc while also adding, “They’re one of us.”

Amid these plays, the S&P 500 Futures drop around 2.0% while the US 10-year Treasury yields mark a nine-pip fall near 1.90% by the press time.

It’s worth noting that the US Dollar Index (DXY) may have further upside to track if the Kyiv-Moscow talks fail, which in turn could direct EUR/USD towards a fresh 2022 low.

That said, US trade numbers for January and Chicago Purchasing Managers’ Index for February to decorate the calendar for short-term directions.

Technical analysis

Unless crossing a 12-day-old resistance line, around 1.1300 by the press time, EUR/USD bears keep reins.

European Commission President Ursula von der Leyen tells Euronews that the EU wants Ukraine in the bloc, adding "they're one of us".

Yesterday, Poland’s president, Andrzej Duda, called for Ukraine to be given an accelerated path to joining the European Union.

“Poland supports an express path for Ukraine’s membership of the EU,” tweeted Duda this afternoon. “Candidate status should be granted immediately and accession negotiations initiated at once after that. Ukraine should also have access to EU funds for reconstruction.”

These remarks follow an appeal from over the weekend from President Volodymyr Zelensky for Ukraine’s potential membership of the bloc to now be “decided once and for all”.