The situation in Ukraine has deteriorated unfortunately after Russian armed forces attacked the country at around 4am UK time, and markets have reacted in the way we had expected. Russian stock markets have suffered their worst day on record, with the RTS Index plunging by more than 40 per cent today. The USD/RUB has rallied to a fresh record high of 90.00, before easing back as oil prices surged with Brent crude going through the $100 barrier to reach a high so far of nearly $105 per barrel. Global markets have also been shaken, with European stocks and US futures slumping, while safe-haven gold has rallied to $1950. The key question is where will the markets head from here and how and how traders could take advantage of all this volatility.
How severe will the economic sanctions be?
Western nations are promising to roll out further sanctions against Russia following the invasion. So far, the sanctions haven’t been too severe, but following the Russian invasion, surely, they will now respond more profoundly in an effort to really hurt the Russian economy. And that’s precisely why we have seen Russian stocks suffer a huge sell-off today. We simple do not yet know exactly how severe these sanctions will be or for how long, and what kind of a response we will get from Russia.
How to trade the volatility?
So, expect the markets to remain highly volatile and in an overall defensive mode. That said and given the gigantic moves in Russian and global assets, traders should be careful chasing the moves here as it could be that the markets have overreacted, and the worst-case scenario might be avoided after all. So, rather than chasing, conservative traders may wish to wait for pullbacks to potentially enter trades in the prevailing directions of the recent trends. More aggressive speculators may consider zooming into smaller time frames to find short-term, quick, opportunities. In any case, traders must be nimble as the markets are headline-driven and highly volatile. Investors, meanwhile, may also consider “bargain hunting” strategies to take advantage of downbeat prices of stocks that might be able to regain their poise quickly – perhaps energy names, miners and others that are not directly linked to Russia.
Gold heading to $2K?
Gold has been an obvious choice for investors of late amid heightened geopolitical risks concerning Ukraine, a struggling global stock market and soaring inflation. Inflation is also helping to keep real bond yields in the negative territory, making the non-interest-bearing gold and silver attractive on a relative basis for yield-seekers. Given gold’s breakout had already started several days ago in anticipation of a potential Russian invasion. With several key levels broken, there is not much in the way of resistance until just shy of $1960, the high from 2021, followed by the psychologically-important $2,000 level. The all-time high comes in at $2,075, hit in 2020. Key support is at around the $1900-$1920 range, which was previously resistance.
Crude oil breaks $100 barrier
Fears over supply disruptions have sent crude oil prices surging further higher. The Brent contract has paved the way for $105 after breaking through the $100 per-barrel-barrier with little effort. Dips back to support should hold until something changes fundamentally. But prices do appear severely overbought and there is a risk of a pullback in the not-too-distant future. Once source of support could come in from expectations of higher Iranian exports. Iran’s foreign minister, Hossein Amirabdollahian, earlier this week said that he hopes outstanding issues in negotiations with world powers to restore the 2015 nuclear deal will be resolved in the “next few days.”
DAX breaks down amid global stock market rout
Thanks to the surging price of crude and gas prices, concerns over inflation has surged further higher. On top of this, there are fears of retaliation from Russia to western sanctions. Russia’s credit default swaps (CDS) have widened sharply, raising fears of contagion to other regions. Global stock markets have therefore slumped. Keep an eye on the German DAX index, for it has broken several support levels, which could turn into resistance upon re-test – as per the chart:
