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Bullion rallies over investors’ flight to safety. Silver continues to climb from the daily support at 22.00.

Following a brief pullback, a break above the recent high at 23.70 indicates strong buying interest. A bullish MA cross is a sign of acceleration to the upside.

The psychological level of 24.00 is the next hurdle and a breakout would bring the price to January’s peak at 24.70. The RSI’s overbought situation may cause a limited fallback; if so the previous low at 22.90 would be the closest support.

The US dollar recovers as hot CPI fuels bets of a 50 basis points hike in March. The rally came to a halt at January’s high (116.35).

Profit-taking compounded by new selling triggered a liquidation below 115.50. The medium-term trajectory remains upward and the bulls may be eager to buy the dips. 114.90 is the next support and an oversold RSI may attract bargain hunters.

Further down, the daily support at 114.20 is a major demand zone in case of a deeper correction. A close above the double top could resume the uptrend.

Markets

European stock markets closed 2%-2.5% lower, but off worst intraday levels following headlines that Russian President Putin gave his Foreign Minister Lavrov the go ahead to continue talks aiming to reach a ‘diplomatic solution’ in the Ukrainian conflict. US stock markets hesitated after Friday’s beating with main indices closing between flat (Nasdaq) and -0.5% (Dow). Technical pictures of key European and US equity gauges are still extremely fragile and at risk of deteriorating further.

US Treasuries fell prey to short covering ahead of the weekend, but that move didn’t persist yesterday. It is telling for the strength of the underlying bear flattening trend. US yield added 7.3 bps (2-yr) to 4.7 bps (30-yr). The US 7-yr yield even closed marginally above the US 10-yr yield.

The German yield curve bull steepened with daily yield changes falling up to 3.9 bps for the 5-yr. This is mainly a catch-up effect from Friday’s moves after European close. Intraday dynamics also showed that any rebound in German Bunds didn’t went that far, again telling something about the ongoing core bond sell-off as global central banks are behind the curve in tackling the inflation problem. 10-yr yield spread changes vs Germany widened by up to 3 bps.

The Japanese yen and the US dollar kept each other in balance yesterday with a close around 115.50 though the balance is again tipping in favour of JPY this morning. EUR/USD closed at 1.1307 and sits perfectly in the middle of the broad 1.1121-1.1483 trading band. EUR/GBP followed the move south in EUR/USD to close at 0.8357.

UK labour market data this morning printed too close to consensus to influence trading. The unemployment rate stabilized at 4.1% in the Oct-Dec period compared to Sep-Nov. Employment over that period declined by 38k vs the consensus estimate of -58k. January data nevertheless indicated a 31.9k decline in jobless claims with payrolls rising by 108k. Labour market data don’t alter the BoE’s normalization plans.

Today’s eco calendar contains German ZEW investor sentiment and the US February Empire Manufacturing Survey. We think they’ll play second fiddle and keep our focus on general risk sentiment. The Kingdom of Belgium will issue a new long 30y benchmark via syndication (OLO 95 June2053). It’s the second syndicated deal following a €5bn 10-yr benchmark mid-January (OLO 94 0.35% June2032). This year’s funding plan consists of raising €41.2bn in OLO funding to cover the lion share of the €48.28bn gross borrowing requirement. A New Green OLO remains in the pipeline for later this year.

News Headlines

The Japanese economy rebounded in Q4 at an 5.4% Q/Q annualized pace (1.3.% Q/Q) from an upwardly revised 2.7% Q/Qa contraction in the previous quarter. The outcome was slightly below expectations but the details were fairly constructive. Private consumption (+2.7% Q/Q) was the main driver as spending rebounded. However, the Omicron variant is again negatively affecting activity in the current quarter. Capital spending rose 0.4% Q/Q. Net exports made a positive contribution to growth of 0.2 ppt indicating a solid export performance. Inventory adjustment subtracted 0.1 ppt. Even after the Q4 rebound, Japanese activity is still slightly below its pre-pandemic level. The resurgence of the Omicron, higher prices and uncertainty on the impact of the Ukraine crisis might slow activity this quarter even as public spending will be a supportive. The 10-yr government bond yield (0.215%) remains well below the 0.25% level that the BoJ indicated it wants to defend last week. The yen strengthens slightly this morning with USD/JPY trading at 115.35.

Iron future contracts in Asia declined about 10% this morning, the second consecutive day of substantial losses. The decline comes as Chinese authorities indicated that they want to take action to address a spread of misinformation on prices. They warn iron are trading companies not to speculate, hoard or hike prices. Chinese authorities (state planner) are also reported to plan meetings with trading companies to ensure a smooth operation of trading in the commodity. The reference contract end last week touched the highest level since early August last year.

EUR/USD

The support zone at 1.1330 was violated and the European common currency continued to lose ground against the dollar during yesterday’s session. If the bearish attack continues, then the expectations are for a test of the target at 1.1268. A successful breach of the aforementioned level would strengthen the negative expectations for the future path of the pair and could easily lead to new losses for the EUR/USD. The first target for the bulls is the level of 1.1330, which is now acting as resistance, followed by the zone at 1.1369. The economic calendar is quite packed today and volatility can be expected at 10:00 GMT, when the GDP data for the Eurozone and the ZEW economic sentiment for Germany are to be announced, as well as the Core PPI for the U.S. at 13:30 GMT. The lack of de-escalation in Ukraine will also keep markets on their toes and might lead to some sharp moves.

USD/JPY

Yesterday, neither the bears nor the bulls managed to gain enough momentum and the Ninja continued to trade in the zone between 115.03 and 115.57. Only a successful breach of one of the borders could set the future direction of the USD/JPY. A violation of the resistance level at 115.57 would pave the way towards a test of the upper target at 116.15, where a breach could lead to a more sustained rally and further gains for the dollar against the yen. A breach of the level at 115.03 will most likely lead to a deeper sell-off towards the support zone at 114.31.

GBP/USD

The breach of the support zone at 1.3521 was not confirmed, and during the early hours of today`s trading, the Cable is holding positions above this level. If the bulls manage to keep the pair from falling below 1.3521, then an attack on the resistance zone at 1.3616 would be the most probable scenario. A successful breach of the aforementioned level would strengthen the positive sentiment and most likely lead to more gains for the sterling against the greenback. If the bears gain momentum and manage to violate the support at 1.3521, then their first target would be the level at 1.3434.

EUGERMANY40

The sell-off was limited by the support at 14839 and the EUGERMANY40 regained some of its losses. At the time of writing, the index is hovering above the level at 15075, and if the bulls breach the resistance at 15297, then the recovery will most likely continue towards the target at 15459. Worse-than-expected data for the German ZEW economic sentiment and the Eurozone GDP data (today; 10:00 GMT) could help the bears to take hold of the market, violate the zone at 15075 and deepen the sell-off towards the major support zone at 14839.

US30

The support zone at 34419 withheld the bearish attack, and during the early hours of today`s trading, the U.S. index steadied just above the mentioned level. If the sellers continue to pressure the US30 and breach the support at 34419, then the sell-off would most likely accelerate towards the support at 33797. The first resistance for the bulls can be found at the level of 34785, followed by 35065. During today's session, investors will be closely watching the data for the U.S. PPI (13:30 GMT) as high readings here could signal an even more aggressive tightening of the Fed’s relaxed monetary policy. The situation in Ukraine will also continue to be on markets’ agenda, keeping volatility high.

American equities declined on Monday as the west continued to focus on diplomacy to address the crisis in Ukraine. Today, a week after Vladimir Putin met with Emmanuel Macron, he will meet with Olaf Scholz of Germany. Putin has demanded that Nato members create securities guarantees that Ukraine will not become a member of the organization. Scholz is expected to ask Putin to de-escalate the situation at the Ukraine border and embrace diplomacy. According to the FT, he will also tell Putin about how severe the sanctions from western countries will be if he invades. The Dow Jones declined by more than 290 points.

The British pound declined slightly ahead of important economic data from the UK. the Office of National Statistics (ONS) will publish the latest jobs numbers in the morning session today. Analysts expect the data to show that the country’s unemployment rate declined to 4.0% in December while the economy created thousands of jobs. These numbers will come a day ahead of the latest inflation data from the UK. The data will provide more details about the performance of the UK economy and give a snapshot about what to expect from the Bank of England (BOE).

The euro continued its bearish trend after Christine Lagarde reaffirmed that any rate hike regime will be gradual. The speech came ahead of the latest Eurozone GDP data scheduled for later today. Analysts expect the numbers to show that the country’s economy expanded by 4.6% in the fourth quarter and by 0.3% on a QoQ basis. Eurostat will also publish the latest employment and trade balance numbers. Other important data to watch will be the latest German economic sentiment.

EURUSD

The EURUSD pair declined to a low of 1.1290, which was the lowest level since February 3rd. The pair dropped to the 50% Fibonacci retracement level. It also crashed below the 25-day and 50-day moving averages. At the same time, the MACD has moved below the neutral level while the Relative Strength Index (RSI) has formed a bearish divergence pattern. Therefore, the pair will likely keep falling as bears target the key support at 1.1250.

GBPUSD

The GBPUSD pair declined ahead of the latest UK GDP data. The pair is trading at 1.3516, which is substantially below the year-to-date high of 1.3570. On the four-hour chart, the pair remains below the 25-day moving average and the 38.2% Fibonacci retracement level. It has also moved below the first support of the Andrews pitchfork tool. Therefore, the path of the least resistance for the pair is to the downside.

XAUUSD

The XAUUSD pair continued its bullish trend as investors moved to safe haven assets. The pair rose to 1,877, which is the highest level since November last year. It also passed the key resistance level at 1,853, which was at the highest point on January 28th. The pair also moved above the 25-day and 50-day moving averages. Therefore, the pair will likely keep rising to the next key resistance at 1,877.

There is a certain relief in the Ukraine-Russia crisis as the two sides seem willing to continue their diplomatic efforts to avoid a military action. The latter could help reversing a part of yesterday’s aggressive selloff in the European markets, and the FTSE 100 could outperform its peers on the back of firm energy and oil prices.

BP, which lost 4% on Monday’s session due to worries that its Russian operations could weigh on the overall performance could recover a part of losses.

Gold gains at risk

Fresnillo jumped 7% in London yesterday as gold advanced to $1880 per ounce, yet the latest gains in gold and oil are vulnerable de-escalation at the Ukrainian border. Any durable relief could pull the gold prices as low as low as $1800 mark, as the rising sovereign yields play against the gold bulls.

Base case: No war

Ukrainian president criticized news giving a date for a potential Russian invasion and said that it could eventually drop its dream to become part of NATO, as a powerful sign of its commitment to de-escalate the tensions at its Russian border.

Lower tensions should have an immediate easing effect on the commodity space as Russia accounts for 45% of the world’s palladium supply, 15% of platinum supply, slightly than 10% of global gold supply, some 8.5% of the global oil supply and 6% of global gas supply.

US producer prices

US indices made a positive attempt on Monday, but the bears were more aggressive than the bulls given the Ukrainian tensions, and the hawkish Federal Reserve (Fed) fears - and the rising oil prices due to the Ukrainian tensions that further fueled the hawkish Fed fears.

The S&P500 slid 0.38% and closed just near the 4400 mark, the Dow dropped near 0.50%, as Nasdaq closed Monday’s session flat. The index fell 5% from last week’s peak, as the post-inflation data trading pulled the interest-sensitive index aggressively down.

Today, the inflation talk continues with the US producer prices due later in the session. Analysts expect a certain easing in the PPI index to 9.1% from last month’s surprise to 9.7%.

Given the rise in oil and commodity prices, there is a higher chance of seeing a positive than a negative surprise.

Any positive surprise could send the PPI index above the 10% psychological mark and keep the bears in charge of the market, regardless of a more hopeful mood due to the diplomatic efforts between Russian and Ukraine.

Market movers today

German Chancellor Scholz is meeting Russian President Putin to seek a diplomatic solution to the tensions around Ukraine.

In Germany, the ZEW expectation of economic growth is expected to show improving confidence amid waning Covid-19 concerns.

In the US, the producer price inflation may attract more attention given the widespread inflation concerns. Market consensus is expecting inflation pressures to remain unchanged in January compared with December.

The 60 second overview

Ukraine-Russia concerns ease slightly: Russia seems to backing more talks and German Chancellor Scholz said to the Ukrainian President that membership of NATO was not a priority, which could be a way to meet Russian demand that Ukraine should not become a member of NATO. Meanwhile, UK Junior Defence Minister had stated that a Russian attack could happen at no notice now. The RUB strengthened against the EUR.

Fed governors split on pace of monetary policy tightening: Yesterday, James Bullard repeated his hawkish message from last week saying: "I do think we need to front-load more of our planned removal of accommodation than we would have previously. Our credibility is on the line here and we do have to react to data." In contrast, San Francisco Fed president on Sunday said it is paramount for the central bank to be measured and data-dependent.

China's central bank kept its policy rate unchanged but injected loans through its medium-term lending facility. The Chinese equity markets increased on the back of the news.

Geopolitics initially sent equities lower on Monday. The sell-off was most pronounced in Europe in catch-up from Friday, but recovered into the session on positive comments on negotiations. Opposite to the risk-off session in Europe, US cyclicals actually outperformed. Growth cyclicals, such as consumer discretionary and tech led the gains, while healthcare and financials sold off. Energy the worst performing sector, reversing Friday's performance despite oil price ending higher. S&P500 closed down -0.4%, Nasdaq unchanged, Dow and Russell 2000 -0.5%. Asian markets are mixed this morning and US futures pointing slightly lower.

FI: It was again a volatile day in the global financial markets with the ongoing uncertainty regarding the standoff between Russia and the West over Ukraine. Comments from various Federal Reserve officials show a significant difference in how much US monetary policy needs to be tightened and how fast this has to happen. Currently, the market seems to be leaning towards Bullard's view given the continued bearish flattening of the US Treasury curve. In Europe, ECB's Lagarde continued to stress the need for a gradual approach and thus we saw a bullish steepening of the EUR curves.

FX: The Scandies, commodity sensitive currencies and the EUR were the losers in yesterday's session where focus very much remains on geopolitical risks and the prospect for tighter global liquidity conditions.

Credit: Credit remains under pressure amid the renewed tensions in the Ukraine/Russia stand-off. Sellers are clearly dominating the markets, where especially large credit ETFs are seeking liquidity by hitting even conservative bids in the market. Itraxx main widened 1.7bp to 66.8bp while Xover widened 6.3bp to 332.1bp. The latter comprises a widening of a full 74.5bp during the latest month. In cash the picture is similarly bearish with IG spreads widening 1.1bp and HY widening 11.2bp.

Nordic macro

No Swedish data today, however, both Stefan Ingves and Martin Flodén from the Riksbank board will discuss monetary policy at two separate events. However, we expect them both to mirror the communication in last week's monetary policy report and press conference.

In Denmark, employer organisation DA is set to deliver private sector wage growth figures for Q4. The labour market has continued to steam ahead, so it will be interesting to see whether the tight labour market has begun to affect wage growth.

UK payrolled employees rose 0.4% mom, or 108k, to 29.5m in January. Over the year, payrolled employees grew 4.8% yoy, or 1.35m. Claimant count dropped -31.9k.

In the three months to December, unemployment rate was unchanged at 4.1%, matched expectations. That's still 0.1% higher than before the pandemic, but down -0.2% from the previous three-month period. Employment rate rose 0.1% to 75.5%, comparing to the previous 3-month period.

Average earnings including bonus rose 4.3% 3moy, much better than expectation of 3.9%. Average earnings excluding bonus rose 3.7% 3moy, above better than expectation of 3.6%.

Full release here.

Risks in financial markets are increasing, and investors had a snapshot of what sort of market reaction could come if Russia invades Ukraine. Last Friday saw the US warn of an imminent attack which sent oil prices 5% higher over two trading days, with Brent fast approaching the $100 price tag. Equity markets also suffered steep losses as the S&P 500 dropped 1.9%, and the Nasdaq Composite tumbled 2.8%. Asian markets are catching up with Friday’s Wall Street losses with Japan’s Nikkei falling more than 2%, while markets in China, Hong Kong, and South Korea are all in the red.

The S&P 500, Nasdaq, and Dow Jones Industrial futures are all pointing towards a cautious start for the week, and US Treasuries are stable as investors await more information.

The deterioration in the Russia situation is stoking massive concerns about price pressures as it could lead to disruption in energy and agricultural supplies. Markets are already on edge over how central banks will act to tame inflation, currently sitting at multi-decade highs. Moreover, US consumer price data released on Thursday gave a strong impression that central bank policymakers have been caught off guard and need to speed up the tightening cycle.

Interest rates futures are now implying a 60% chance of the Federal Reserve delivering a 50-basis point rate hike on March 17, up from 20% before the CPI release. That has led to further flattening in the US yield curve where the widely watched spread (10-year minus 2-year Treasury yields) has reached 0.42%. An inverted yield curve would suggest to many that a recession is looming, and that would likely cause a further selloff in risk assets, so investors need to keep a close eye on bond yields over the coming weeks.

This week, the US economic calendar provides new updates on producer prices, retail sales, housing starts, existing home sales, and the FOMC minutes. However, it is speeches from the Federal Reserve officials that will move interest rates expectations with New York Federal Reserve Bank President John Williams, St. Louis Federal Reserve Bank President James Bullard, Cleveland Federal Reserve Bank President Loretta Mester, and Chicago Federal Reserve Bank President Charles Evans all scheduled to speak.

Given all market forces in play, the only certainty here is further market volatility. As a result, long-term investors will be looking for bargain opportunities while traders try to play the intraday moves.

Daily Pivots: (S1) 1.1269; (P) 1.1319; (R1) 1.1358; More...

Intraday bias in EUR/USD remains neutral for the moment, and outlook is unchanged. Further rise will remain mildly in favor as long as 1.1265 minor support holds. On the upside break of 1.1482 will target 38.2% retracement of 1.2348 to 1.1120 at 1.1589 next. Sustained break there will argue that whole fall from 1.2348 has completed too and target 61.8% retracement at 1.1879. On the down, however, break of 1.1265 support will dampen this bullish view and bring retest of 1.1120 low instead.

In the bigger picture, the decline from 1.2348 (2021 high) is seen as a leg inside the range pattern from 1.2555 (2018 high). Sustained trading above 55 week EMA (now at 1.1613) will argue that it has completed and stronger rise would be seen back towards top of the range between 1.2348 and 1.2555. However, firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next.