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The Euro opened with gap-lower on Monday as geopolitical tensions escalated after Russia put its fast response forces, including nuclear, on highest alert over the weekend.

Although the pair bounced after dipping to 1.1125 after Monday’s opening (close to Thursday’s low, hit after Russia launched an attack on Ukraine, but talks between Russia and Ukraine, which started today, may ease tensions and ease near-term downside pressure and allow for further recovery.

However, upticks are expected to be limited and possibly to fill today’s gap before bears regain control, as overall picture remains negative on persisting threats of further escalation that keeps traders in defense and focusing safe-havens.

Bearish daily studies support the notion as 14-d momentum continues to head south and move deeper into negative territory, while moving averages are in full bearish setup.

Initial resistance at 1.1200 zone (round-figure / Fibo 23.6% of 1.1494/1.1106 descend) is under pressure, with extended upticks to stall under pivotal barriers at 1.1250 zone (Fibo 38.2% / daily Tenkan-sen) to keep bears in play and offer better levels to re-enter downtrend for acceleration towards targets at 1.1040/1.1000 (Fibo 76.4% of 1.0635/1.2349 /psychological).

Only return and close above 1.1300 (50% retracement of 1.1494/1.1106 / daily Kijun-sen) would ease bearish pressure.

Res: 1.1200; 1.1254; 1.1280; 1.1300.
Sup: 1.1166; 1.1125; 1.1106; 1.1040.

The euro remains under pressure and was down close to 1% earlier in the day. EUR/USD has recovered and is currently trading at 1.1215, down 0.50%. There are no tier-1 events on today’s economic calendar.

Russian-Ukrainian talks to discuss cease-fire

The financial markets remain focused on Ukraine, where fierce battles continue to rage. Russian and Ukrainian officials are meeting on the Belarus-Ukraine border to discuss a cease-fire, and if there are any positive developments from the meeting, we could see risk appetite return and push the US dollar lower. In the meantime, the dollar remains elevated against the major currencies, as panicky investors have snapped up the safe-haven dollar. US Treasury yields have been on an upswing and the dollar index has risen 0.42% to 97.02.

US data showed some strength at the end of the week. The key release was Core PCE, which is the Fed’s preferred inflation indicator. The January reading accelerated to 5.2% YoY, up from 4.9% in December and above the consensus of 5.0%. This was the highest reading since July 1982, and puts additional pressure on the Fed to raise rates by 50 basis points at the March meeting. However, these are not normal times, as the uncertainty around the Ukraine crisis has decreased the likelihood of a 50 bps hike. According to CME’s Fedwatch, the likelihood of a 25-bps hike is 76% and a 50-bps is 24%.

There was more good news, as Personal income and spending beat expectations, as did UoM Consumer Sentiment. Durable Good Orders jumped 1.6% MoM in January, up from 1.2% in December and above the 0.8% forecast. Despite the strong finish to the week, the markets were clearly more focused on geopolitical developments, and the direction of the US dollar this week will largely depend on developments in the Ukraine crisis.

EUR/USD Technical

• There is resistance at 1.1406 and 1.1538
• There is support at 1.1124, followed by 1.0974

The Dax 40 rebounds as traders bet that sanctions against Russia may not reach their full extent.

The index saw solid bids near its 12-month lows (13800). The RSI’s repeated oversold indication has led short-term sellers to take profit in this key demand zone. 14850 from the tip of a previous bounce is the immediate resistance where the bears could be awaiting to sell into strength.

A bullish breakout could soothe a battered mood. Otherwise, another round of sell-off may push the index below 13500.

The sterling recoups some losses as sentiment stabilizes after the initial fear-driven sell-off.

A clean cut through the daily support at 1.3360 has triggered a wave of liquidation. Sentiment remains downbeat despite the recent rebound. A deeply oversold RSI attracted some bargain hunters.

However, the pound is vulnerable to another sell-off as buyers could be wary of catching a falling knife. 1.3500 from the previous consolidation range is the closest resistance. Further down, 1.3200 (near last December’s lows) might be the next target.

Gold price started a major increase above the $1,900 resistance against the US Dollar. The price broke the $1,950 resistance level, but it struggled to clear the $1,975 zone.

The price started a fresh decline and traded below the $1,950 level. The bears pushed the price below the $1,900 level and the 50 hourly simple moving average. The price traded as low as $1,878 and is currently consolidating losses.

On the upside, the price is facing resistance near the $1,920 level. The next main resistance could be near the $1,932 level, above which the price could rise towards the $1,950 level. Any more gains might open the doors for a move to $1,975 on FXOpen.

If not, it could drop below $1,900. The next major support is near $1,885, below which the bears might gain strength. In the stated case, the price could start a steady decline towards $1,865.

US and European equity futures fell dramatically in early Asian trading hours along with bond yields, while the dollar and commodity prices surged as investors looked for havens to hedge their portfolios, following the latest developments in the Ukraine crisis.

The Russian ruble plunged by almost 30% to trade at a new record low of 106 ruble per dollar after Western countries blocked a list of Russian banks from the SWIFT global payment system. Fears that oil supplies could be disrupted sent Brent crude 5% higher and European gas futures rose by more than 60%. The decision to cut Russia from the global payment system could possibly halt gas supplies to Europe and lead to dangerous economic consequences on the continent and the rest of the world.

Investors are still trying to figure out what happens next and act accordingly. Dip buyers emerged on Thursday and Friday, just one day after the large-scale military attack, but now they are seeking shelter again after they realized that this war is not a one-day event and outcomes are hard to predict.

The world has not seen a military confrontation on such a scale since World War II, and no one seems to know how this will end. It’s not just the direct effects that worry investors such as the short-term impact on commodity prices, but the longer-term consequences are of even greater importance.

Monetary and fiscal policy makers across the Western world have already exhausted their tools in response to the coronavirus pandemic. Now they are facing a new crisis with bloated fiscal deficits and near zero interest rates. So, any response from governments will be limited in supporting the economy or financial markets in case of turmoil and investors will be left on their own.

The Fed, ECB, and other major central banks are already behind the curve with inflation levels at multi-decade highs. The current geopolitical crisis will only add further upward pressure on prices, and central banks are left with no option but to tighten policy. So those counting on monetary policy makers to intervene in case of a meltdown will be disappointed.

The global economy may not be headed towards a recession, but the chances of one have increased over the past few days. The trajectory of the ongoing conflict will be an important factor to investors as it will either encourage dip buyers to emerge or lead to further steep selloffs.

Allocation to cash needs to be high in current circumstances. Even companies with very solid financials will be highly correlated to the overall market. A defensive approach is needed as volatility continues to spike, but with such volatility comes long term investment opportunities, and hence cash is vital.

Swiss KOF Economic Barometer dropped from 107.2 to 105 in February, below expectation of 108.5. KOF said, "the indicators from the manufacturing sector are primarily responsible for the decline, followed by those from the financial sector. The signals for the Swiss exporters are somewhat more favourable than before. "

Full release here.

Gold prices started the day with a positive gap, but they quickly declined lower, unable to re-challenge the 19-month high of 1,974. The RSI indicator is showing some positive signs as it is pointing upwards in the bullish region; however, the MACD is approaching its trigger line for a bearish cross above its zero level.

In case there are steeper declines the next immediate support could come from the 1,877 barrier and then from the 20-day simple moving average (SMA) at 1,859 ahead of the 1,853 support level. More downside pressures could visit the 40-day SMA at 1,837 and the 200-day SMA at 1,808, which encapsulates the long-term ascending trend line and the Ichimoku cloud. Any moves below these obstacles could open the window for a bearish market in the short-term view.

On the other hand, a climb above the strong resistance at 1,916 could take the bulls until the 1,960 barrier, taken from the peak on January 2021 before meeting again the 19-month top of 1,974. Above these hurdles, the next stop could come from the 1,991 mark, registered in August 2020.

All in all, the yellow metal is creating a negative move after the aggressive spike towards the multi-month high in the previous week. However, the broader picture is still bullish and only a fall below the 200-day SMA and the uptrend line may change this view.

EUR/USD

The single European currency has lost nearly a figure and a half of its value against the U.S. dollar since the beginning of the trading session. For the time being, the sell-off remains limited above the support zone at 1.1107. It is possible to witness additional sell-offs, but for this to happen, the bears would first need to prevail and successfully breach the aforementioned support at 1.1107. By the looks of it, another volatile week is ahead of us mostly due to the deteriorating conflict between Russia and Ukraine. Investors will also look at the ADP non-farm employment change data for the U.S. (Wednesday; 13:15 GMT), as well as the unemployment change data for the U.S. (Friday; 13:30 GMT), with the spotlight falling on the non-farm payrolls change data for the U.S. (again on Friday at 13:30 GMT).

USD/JPY

Last week, we witnessed two consecutive unsuccessful attempts at breaching the resistance at 115.72. The U.S. dollar continues to gain positions against the Japanese yen, which is likely to lead to a third test of the mentioned resistance zone. A successful breach here could lead to a rise and a possible test of the next significant level at 116.15. On the other hand, if the bulls fail to gain enough momentum, then it is very likely for the bears to enter the market and lead the trading action towards the first significant support area at 115.10.

GBP/USD

The U.S. dollar strengthened its position against the British pound, and at the time of writing, the trade is located immediately after the breach of the support area at 1.3366 – a level that would play the role of resistance if the breach is confirmed. In this case, the most likely scenario would be for an additional reduction towards the next significant support at 1.3270.

EUGERMANY40

The German index opened with a negative gap in the first trading session of this week, losing more than 4% of its value due to the escalating conflict between Russia and Ukraine, which has led to uncertainty and fear among investors around the world and resulted in a flurry of economic sanctions against Russia. Another week of high volatility awaits the index, which may face a test of the key support at 13800. A possible breach of the mentioned support would seriously worsen the current sentiment and could lead to a deepening of the sell-off towards the next significant zone at around 13000. Investors will closely monitor the development of the forthcoming negotiations between Russia and Ukraine, the outcome of which is expected to play a major role in shaping the future of the index.

US30

After recovering from Friday's session, the U.S. blue-chip stock index opened with a negative gap today, losing more than 1.7% of its value at the time of writing. The losses were largely driven by the growing concerns about the economic consequences spurred from the Russia - Ukraine conflict. A confirmed breach of the 33572 area would open an opportunity for the bears to instigate an additional sell-off and to attack the next support zone at around 32350. Negotiations between the warring parties remain at the forefront, the outcome of which would be the main factor determining the future of the index. Any planned economic news this week that could affect the volatility of the U.S. index has already been mentioned in the EUR/USD analysis.

European futures retreated on Monday morning as the crisis in Europe continued. Russian troops continued moving into Ukraine, where they are finding stronger resistance than they had expected. During the weekend, pressure on Russia continued as a group of western countries announced new sanctions that are set to hit Russia harder. For example, the countries will disconnect Russia from the SWIFT system that is used by over 11,000 banks globally. They also announced plans to limit activities by the Bank of Russia.

The Australian dollar retreated even after the country published strong economic data. According to the country’s statistics agency, retail sales bounced back in January after they crashed by 4.4% in December. At the same time, private sector credit and housing credit also did well in January. These numbers came as the Reserve Bank of Australia (RBA) started its second meeting of the year. Analysts expect that the bank will leave interest rates unchanged and point to a rate hike in May or June this year. At the same time, analysts expect that many Australian natural gas players will benefit from the ongoing challenges in Moscow.

The market will continue to focus on the ongoing crisis in Europe today. In addition, there will be some key economic numbers. Sweden will publish the latest GDP and retail sales numbers. Switzerland will also announce the latest GDP data while Spain will publish the flash inflation numbers for February. Several important companies will publish their quarterly results this week. Some of those that will publish their results are Ambarella, Workday, TaskUs, and Nielsen Holdings.

EURUSD

The EURUSD pair is trading at 1.1146, which is a bit higher than last week’s low of 1.1100. On the four-hour chart, the pair is slightly above the middle line of the Bollinger Bands and slightly above the 25-day moving average. The MACD has made a bullish crossover while the Relative Strength Index is pointing downwards. Therefore, the pair will likely resume the downward trend as investors assess the impact of sanctions.

EURCAD

The EURCAD continued its downward trend on Monday morning. It is trading at 1.4273, which is substantially lower than this month’s high of 1.4633. On the four-hour chart, the pair has moved between the 23.6% and 38.2% Fibonacci retracement level. It is also below the 25-day and 50-day moving averages. Therefore, the pair will likely keep falling in the next few days.

USDZAR

The USDZAR pair rose on Monday morning as investors moved to the safety of the US dollar. It is trading at 15.35, which is slightly lower than last week’s high of 15.28. On the four-hour chart, the pair is slightly above the 25-day moving average while the Relative Strength Index (RSI) has moved from the overbought level. Therefore, the pair will likely continue moving higher in the near term.