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Brent crude experienced its biggest intraday decline yesterday, losing more than $17 on the day to $110, with the range of movements on the spot market exceeding $26.The momentum of the decline was triggered by Blinken’s (US Secretary of State) reports that the UAE was ready to ramp up its production, replacing Oil from Russia and stabilising the market. UAE officials soon said they remained committed to the current agreements. But this did not help Oil, which stabilised near levels a week ago.

The UAE and Saudi Arabia have significant spare capacity to restore their production to pre-demand levels and even increase their global market share. At the same time, most OPEC representatives are not fully committed to their quotas.

Iran and Venezuela have more options. Both countries are trying to use the situation to ease US sanctions pressure. Iran produces 2.3 million barrels per day, about half of pre-sanctions levels. Venezuela’s production is around 0.8m BPD versus 3.1m BPD before the 2019 sanctions. Both countries can get 0.4m b/d back on the market quickly, but it will take a significant investment in the industry and a long time to grow after that.

Caracas is already curtseying towards the US by releasing two prisoners. The US is lifting some sanctions on some Iranian politicians even before the deal is struck. These are signs of progress towards easing sanctions and a clear signal to Russia that the world is not so dependent on its energy.

These are all signs favouring our idea that the peak of fear, and therefore oil prices, is over. Furthermore, Russia has not yet even gone so far as to threaten to halt exports as OPEC did in 1972. That said, military tensions and further restrictions on Russian oil and gas imports could trigger growth impulses, some of which could be strong. However, the oil price situation looks depleted.

We are set to see either a consolidation around these levels in a pessimistic war scenario, or a correction to around $90 on progress in the peace talks and the start of a move to ease sanctions on Russia, Iran and Venezuela.

The Euro steadies above 1.10 level in European session on Thursday, following 1.6% rally previous day (the biggest one-day rally since Jan 9, 2019).

The single currency was lifted by improved sentiment on hopes of de-escalation of the conflict in Ukraine that prompted investors into riskier assets.

The two-day rebound from 22-month low (1.0806) and Wednesday’s close above pivotal barriers at 1.1000/40, improved near-term outlook and put larger bears temporarily on hold.

Technical studies on daily chart show rising momentum (although the indicator is still deeply in the negative territory) and fresh bulls cracking next pivot at 1.1059 (10DMA), with clear break here to add to positive signals and open way towards targets at 1.1121 (Jan 28 former low) and 1.1150 (50% retracement of 1.1494/1.0806 fall, reinforced by daily Kijun-sen).

Repeated daily close above 1.1040 (former strong Fibo support) is needed to reinforce near-term bullish stance and add to reversal signals.

However, fundamental are expected to keep the key role in defining the pair’s near-term direction, with all eyes on talks between top Russian and Ukrainian officials, the ECB policy meeting and the EU summit.

The European Union leaders are expected to provide more details of the further steps of bloc’s policy response to Russia’s military action in Ukraine, while investors expect the European Central Bank to announce the start of gradual phasing out its pandemic bond-buying program and to start raising interest rates before the end of the year.

On the other side, the EU is facing strong pressure from the war and fears that impact of the sanctions imposed on Russia may derail the economy and slow stable post-pandemic growth, as the EU is the most vulnerable due to its strong economic ties with Russia and heavy dependence on Russian energy and raw materials.

This may cause the more cautious approach by the policymakers and possibly result in a more dovish than expected central bank’s stance on today’s policy meeting.

Res: 1.1095; 1.1121; 1.1150; 1.1231.
Sup: 1.1040; 1.1000; 1.0962; 1.0900.

AUDUSD has pushed back above the 0.7300 handle and is recouping previously lost ground following the pullback from the 0.7431-0.7474 resistance border. The longer-term SMAs continue to retain a negative bearing but the 50-day SMA, which has been developing a positive incline, is hinting that the positive trajectory in the pair is sturdy for now.

The short-term oscillators are mixed but are leaning slightly towards a continued upside development in the price. The MACD, in the positive region, is persisting above its red trigger line, while the RSI is improving in the bullish zone. On the other hand, the stochastic oscillator is signalling some weakness in its negative charge as its %K line turns marginally higher. However, traders need to keep in mind that the stochastic oscillator has yet to confirm that negative pressures have fully abated.

If the price reclaims additional ground, the upper Bollinger band at 0.7373 may test the potency of the renewed positive traction in the pair. Steering higher, the 0.7431-0.7474 resistance border could then try to cap price advances. In the event buyers conquer this barrier, the bulls may pursue an area formed between the October 2021 highs of 0.7531 and 0.7555 respectively.

Alternatively, if positive forces start to fade and the price withdraws back beneath the 200-day SMA at 0.7309, a profound negative force would be needed to avoid the pair finding its feet within a fortified buffer zone between the 0.7245 low and the 50-day SMA at 0.7195. This area is also overlapped by a potential supportive trend line pulled from the 18½-month low of 0.6967. Diving past this tough boundary, sellers may aim for the lower Bollinger band - residing at the 0.7094 trough - and the nearby 0.7051 low.

Summarizing, AUDUSD is sustaining a minor uptrend above the 0.7195-0.7245 support zone. To significantly reinforce upside momentum, the price would need to propel above the 0.7589-0.7645 barrier, while a decline beyond the 0.6963-0.7020 base would intensify negative pressures in the pair.

US stock rallied sharply on Wednesday after falling in the past four consecutive days. The Dow Jones rose by more than 600 points while the tech-heavy Nasdaq 100 index rose by over 373 points. Some of the biggest winners were technology companies like Bumble, Figs, Carvana and United Airlines, which rose by more than 10%. On the other hand, the CBOE Volatility index crashed by almost 8% while energy groups like Marathon Oil, ExxonMobil, and Pioneer Natural Resources crashed. Still, it is unclear whether Wednesday’s gains will hold because of how volatile the markets have been lately.

The euro bounced back on Thursday morning as investors waited for the upcoming Eurogroup meeting and the interest rate decision by the European Central Bank (ECB). Analysts expect that European leaders will announce a new round of stimulus in a bid to prevent the bloc from going into a recession. At the same time, they will deliberate on how to reduce their dependence on Russian oil and gas. On the other hand, analysts believe that the ECB will decide to be more dovish in a bid to support the economy.

The US dollar strength took a breather as the VIX index dropped. Data published by the American labor department showed that the country’s vacancies rose to over 11 million people as companies continued recovering. The data came a few days after the US said that its total unemployment rate dropped to 3.8% in February. Later today, the US will publish the latest consumer inflation data. Analysts expect the data to show that the headline CPI jumped to 7.9% in February while core CPI dropped slightly to 5.9%.

EURUSD

The EURUSD pair has been in a strong bearish trend in the past few days. It fell to a low of 1.0805. It has bounced back in the past 2 days and is trading at 1.1045. On the four-hour chart, the pair has managed to move above the 25-day and 50-day moving averages. It is also approaching the 38.2% Fibonacci retracement level. Therefore, the pair will likely keep rising as bulls target the next key resistance at 1.1150, which is along the 50% retracement level.

USDMXN

The USDMXN pair dropped sharply as most emerging market currencies rose. It moved to a low of 20.93, which is the lowest it has been since March 7. This price is substantially below this week’s high of 21.50. On the four-hour chart, the pair has moved below the 25-day moving average while the Relative Strength Index has moved to the oversold level. Therefore, the pair will likely keep falling in the near term.

NAS100

The Nasdaq 100 index rose as the significant sell-off took a rest. The index is trading at $13,460, which is significantly higher than this week’s low of $13,095. On the four-hour chart, the index is slightly above the middle line of the Bollinger Bands while the Relative Strength Index (RSI) has moved from the oversold level. Therefore, the index will likely keep rising in the coming days.

The US 30 (cash) index failed again to touch the one-year low of 32,200 and returned higher but the near-term bias is still bearish. The 40- and the 200-day simple moving averages (SMAs) posted a death cross, confirming the bearish outlook. The RSI indicator is flattening below the 50 level, while the %K and the %D lines are ticking higher after the bullish cross.

Further losses should see the latest low of 32,200 being tested before tumbling to the next support level of 30,530. If the bears continue to sell the index, the 30,000 round number may halt the negative movements.

In the event of an upside reversal, the 20-day SMA at 33,766 may act as strong resistance ahead of the 34,180 peak. Above these crucial levels the death cross around 35,058 could be the next target around the 35,140 hurdle.

All in all, the US 30 index has been in a negative tendency since January and only a successful climb above the SMAs may change this outlook.

Short Term Elliott Wave View in GBPUSD suggests that the decline from February 18 peak is unfolding as a 5 waves impulse Elliott Wave structure. Down from February 18, wave (i) ended at 1.3536, and rally in wave (ii) ended at 1.3621. Pair then resumes lower in wave (iii) towards 1.3272, and rally in wave (iv) ended at 1.3439. Final leg lower wave (v) ended at 1.327 which also completed wave ((i)). Rally in wave ((ii)) completed at 1.3417 with internal subdivision as a zigzag. Up from wave ((i)), wave (a) ended at 1.335, pullback in wave (b) ended at 1.3308, and wave (c) higher ended at 1.3417 which completed wave ((ii)).

Pair resumes lower in wave ((iii)) with internal subdivision as an impulse. Down from wave ((ii)), wave (i) ended at 1.336, and wave (ii) ended at 1.3393. Pair resumes lower in wave (iii) which ended at 1.3138, and wave (iv) rally ended at 1.3214. Final leg lower wave (v) of ((iii)) ended at 1.3080. Wave ((iv)) rally in GBPUSD ended at 1.3190 with internal subdivision as a flat Elliott Wave structure. Near term, expect pair to extend lower in wave ((v)). As far as pivot at 1.3417 high stays intact, rally should fail in the sequence of 3, 7, or 11 swing for further downside.

GBPUSD 60 Minutes Elliott Wave Chart

NZDUSD shifted to the sidelines after Monday’s advance faltered near the 200-day simple moving average (SMA) and at a three-month high of 0.6924.

Despite yesterday’s festive mood in the FX space, the pair could barely extract any gains, remaining constrained within its weekly range and the 0.6800 territory. That said, the technical picture is still promising. The 20- and 50-day SMAs have registered a bullish cross for the first time since October, while the RSI and MACD oscillators maintain a clear uptrend within the bullish zone, all brightening prospects for the short-term trading.

Practically, for the positive signals to boost buying orders, the price will need to close above the 50% Fibonacci retracement of the 0.7217 – 0.6528 downleg at 0.6872, and then successfully claim the 200-day SMA at 0.6920. Such an action could add fuel to the bullish wave, driving the price straight up to the 61.8% Fibonacci of 0.6997. Further up, the price may test the 78.6% Fibonacci of 0.7068 before accelerating towards September’s and October’s highs at 0.7169 and 0.7217, respectively.

On the downside, the 38.2% Fibonacci of 0.6790 managed to add strong footing under the price this week. If it collapses, selling pressures could amplify towards the 0.6730 – 0.6690 zone that encapsulates the short-term SMAs and the 23.6% Fibonacci. Notably, the descending trendline drawn from January’s lows is also passing through this region. Hence, any violation at this point could produce a sharper decline likely to 0.6600, while deeper, the bears will attempt to activate the one-year-old downtrend below 0.6528.

In brief, the short-term bullish bias in NZDUSD has not faded yet despite the ongoing sideways trading. Traders may wisely wait for a rally above the 0.6872 – 0.6920 zone before they raise exposure in the market. Alternatively, a break below 0.6790 could boost engagement in selling activities.

Market movers today

Focus remains on possible peace negotiations between Russia and Ukraine. Yesterday, we published the first part of a series of publications where we analyse the implications from the war in Ukraine, Research Russia-Ukraine: Updated scenarios and implications for commodity markets, 9 March. In our main scenario, we do not expect the conflict to spread to other countries and see commodity prices broadly moderating over the next six months. Also, as uncertainty mounts and inflationary pressures increase, have a look at our piece Research Global: Rising recession risk as yet another supply shock hits, 9 March.

A key event today will be the ECB meeting, where we will get important signals on how the ECB sees the current trade-off between inflation and growth. We expect the ECB to continue its path towards entering a 'neutral' monetary policy calibration and formally set an end date for the APP programme (in September this year), due to the high inflation pressure, but fall short of giving a firm indication of an upcoming rate hike, see ECB Preview - Inflation forces the normalisation process to continue, 3 March.

We also get US CPI. Although the data is for February and not incorporate the latest increase in commodity prices, it will give important input on the underlying inflation pressure.

The 60 second overview

Risk on: Markets turned risk on yesterday as President Zelenskyi's deputy chief of staff Ihor Zhovkva hinted they would be open for diplomatic talks regarding the country's neutrality, echoing comments made earlier in an ABC interview by Zelenskyi. Zhovkva said that the country is ready for a diplomatic solution but that they would not surrender a 'single inch' of their territory. As a pre-condition for any talks he called for an immediate ceasefire and withdrawal of Russian troops. Markets have clearly interpreted Ukrainian comments as encouraging signals that the two countries could be approaching some kind of an agreement. We still remain sceptical towards any diplomatic solution in the very short term, but as we discuss in our Research Russia-Ukraine: Updated scenarios and commodity price implications, 9 March, we think there will eventually be a truce and Ukraine will be forced into making painful concessions.

War developments: Ukrainian President Zelenskyi said at least 35,000 people were evacuated via the humanitarian corridors established on Wednesday despite problems in evacuations around the cities of Kyiv, Kharkiv and Mariupol. Russian air strike into a maternity and children's hospital in Mariupol has been widely condemned and Zelenskyi has accused the Russian army of a war crime. The White House made a warning yesterday evening that Russia could use chemical or biological weapons in a false-flag operation in Ukraine.

Oil market: Extreme volatility continues in oil markets as Brent prices fell from USD 130 to around USD 110 yesterday. The United Arab Emirates said they will encourage fellow OPEC members to increase production in the middle of the supply crunch and price boom caused by the war in Ukraine and the sanctions against Russia. The UAE's energy minister came out later and softened the comments saying the UAE remains committed to the OPEC+ agreement. According to sources, UAE had not consulted other OPEC members before making the statement, and Saudi Arabia, the de facto leader of the group, had no immediate response. The UAE has less room to raise output than Saudi Arabia, which thus far has been reluctant to ramp up production.

Equities: Tuesday finally brought a rebound, with European and US markets significantly higher. Peculiar sector mix with growth sectors rebounding hand in hand with oversold banks and autos. Defensives generally lagged, and energy the only sector lower. S&P gradually improved over the session S&P 500 2.6%, Nasdaq 3.6%, Russell 2000 2.7% and Dow 2%. Asian markets are mostly following the rebound this morning but US futures have dipped slightly lower.

FI: Yesterday, the risk sentiment turned strongly positive and yields across Europe rose sharply. 10Y German yield rose nearly 10bp with Italy tightening 4bp. The shorter rates rose slightly more than longer rates, flattening the curve by 1-2bp, on the outlook for central banks to be more hawkish on targeting the high inflation if global uncertainty will improve. Also on the back of positive risk sentiment, credit spreads tightened in line with rising equities and German ASW levels dropped 3bp.

FX: SEK and EUR gained vis-à-vis JPY and USD yesterday, which marked a first sign of turnaround in risk sentiment and stabilisation of commodity markets. EUR/USD remains bellwether for risk sentiment and trend in commodity markets; hence, unsurprisingly it bounced above 1.10.

Credit: The mood improved significantly in credit markets yesterday where particularly CDS indices saw substantial tightening. iTraxx Xover tightened 35.5bp and Main 7.3bp. Performance in cash space was somewhat less strong, but HY bonds still tightened 20bp and IG 1bp.

Nordic macro

Today brings Norwegian inflation data for February. Price rises have been volatile over the past couple of months but basically somewhat higher than expected. Part of the reason is that strong global price pressures have meant that import prices have held up better than might have been expected given the strengthening of the NOK during the autumn. We also know from various surveys that there are still substantial cost pressures working their way through the value chain, and wage growth looks set to be higher than anticipated last year. We therefore predict core inflation of 0.7% m/m in February, taking the annual rate up from 1.3% to 1.6%, with risk clearly tilted to the upside. This would once again be well above Norges Bank's December forecast (1.2% y/y for February) and contribute to the expected upward revision of the bank's rate path at the March meeting. That said, core inflation is still moderate and below the 2% target, so there is no reason for Norges Bank to panic.

WTI crude tumbled after the UAE said consider boosting production.

The parabolic climb came to a halt at 129.00 and pushed the RSI into an extremely overbought condition on the daily chart. A bearish RSI divergence suggested a loss of momentum and foreshadowed a correction as traders would be wary of chasing the rally.

A fall below 115.00 led buyers to bail out, triggering a wave of liquidation. 105.00 is the next support and a breakout could bring the price back to 95.00 near the 30-day moving average.

The sterling claws back losses as risk appetite makes a timid return across the board.

Following a three-month-long rebound on the daily chart, a lack of support at 1.3200 and a bearish MA cross shows strong selling pressure. A bounce-back above 1.3200 may only offer temporary relief as sellers potentially look to fade the rebound.

1.3350 is a key hurdle that sits along the 20-day moving average. 1.3080 is fresh support and its breach could trigger a new round of sell-off below the next daily support at 1.2880.