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• S&P 500 enters corrections territory as sanctions on Russia mount
• But nerves later steady as market impact seen limited, oil and gold slip
• Kiwi jumps on hawkish RBNZ, aussie outperforms too as dollar stays soft

Markets wary but less worried about Ukraine conflict

The market mood steadied on Wednesday, having wavered on Tuesday as the Ukraine crisis unfolded, with the United States and its allies slapping sanctions on Russia for ordering troops into Ukraine’s separatist regions.

Washington has made it more difficult for the Russian government to issue new debt as it welcomed Germany’s decision to suspend the certification of the Nord Stream 2 gas pipeline project. However, the measures taken by other countries were less punitive as they mostly involved a ban on Russian individuals and entities.

Although these are likely to be just the first of several waves of sanctions that the West will impose on Moscow should Russian forces enter the Ukrainian government-controlled territory, there was some relief that a tougher response was saved for future escalation.

As far as President Biden is concerned, there is no doubt that an invasion has started, and even though the proposed summit with his Russian counterpart Vladimir Putin has been called off, investors have not completely given up on a diplomatic solution. Either that or they think the US and Europe will back off from opting for sanctions that could inflict substantial pain on their own economies.

Stocks rebound as investors reassess Ukraine risks

The notion that even if a war in Ukraine is inevitable the broader economic fallout might not be so devastating after all might slowly be creeping into the markets, thus lifting sentiment slightly today. US stock futures are edging higher following another awful trading day on Wall Street on Tuesday.

The S&P 500 fell into correction territory for the first time in two years after slumping to one-month lows, while the Nasdaq Composite and Dow Jones both logged losses of more than 1%.

But global equity markets are backing the turnaround in risk appetite today, with Asian stocks closing mostly higher and European shares getting off to a solid start.

Oil rally pauses for breath, gold tests $1,890

The somewhat more positive tone weighed on save havens such as gold, the Japanese yen and Swiss franc. The precious metal eased to around the $1,890/oz level and oil prices were lower too.

Brent crude futures stepped back from the brink of hitting $100 a barrel on Tuesday, settling near the $96 handle today. WTI futures were last quoted at $91.39 a barrel.

Apart from ebbing fears about Russian energy exports getting caught in the Ukraine crossfire, the possibility that Iranian supply could soon enter the oil market is also weighing on prices as negotiators are reportedly inching closer to renewing the Iran nuclear agreement.

Nevertheless, the pullback in oil is negligible as demand is expected to continue to outstrip supply over the coming months.

Dollar stuck in a tight range

The US dollar remained on the backfoot as the combined easing in risk aversion and doubts about how hawkish the Fed will be kept the currency’s index against a basket of rivals confined within a narrow trading range.

Fed policymakers have in recent days appeared undecided about the need for a big rate hike in March. Though, the fact that it’s not being ruled out and the data generally supports it, means some traders may be underestimating the risk of a 50-basis point move.

On today’s Fed roster are the San Francisco Fed’s Daly and Governor Waller.

Kiwi shines after RBNZ’s hawkish surprise, pound lags

Stealing the FX limelight on Wednesday were the commodity-linked currencies. The aussie gained 0.6% despite only a modest pick up in wage growth in Australia in Q4. The loonie was up about 0.5% but the New Zealand dollar surged by 1% following the RBNZ’s decision to raise interest rates for a third straight meeting earlier today.

The RBNZ’s announcement was already fully baked in by the markets but the minutes revealed that it was a close call between 25 and 50 basis points. Moreover, policymakers now expect the official cash rate to reach 3.35% as opposed to the previous projection of 2.6%.

The sharply more hawkish tone caught investors off-guard, propelling the kiwi to just under the $0.68 mark.

The euro also benefited from the improvement in risk sentiment, climbing above $1.1355, but sterling lagged its peers somewhat as it struggled to reclaim the $1.36 level.

As the RBNZ ponders a 50-bps hike, the Bank of England seems to be backing away from an immediate aggressive move. Speaking before lawmakers today, BoE Governor Andrew Bailey pointed to the risk of second-round effects from high inflation but gave no clear indication that a shift to increments of larger than 25 bps was on the cards soon.

NZDUSD is set to confront the Ichimoku cloud’s lower band, which intersects with a potential restrictive trend line pulled from the 0.7216 high, putting the durability of the progressive price bounce from the 16-month low of 0.6528 to the test. The longer-term 100- and 200-day simple moving averages (SMAs) are defending a more than three-month decline, while the calmer downward slope of the 50-day SMA is reflecting buyers’ recent efforts to oppose the negative picture.

The red Tenkan-sen line is indicating the latest increase in positive forces, while the blue Kijun-sen line has yet to show that downward pressures have fully abated. The short-term oscillators suggest bullish momentum is growing. The MACD, which continues to climb north of its red trigger line, has pushed beyond the zero threshold, while the RSI is heading for the 70 overbought level. Moreover, the positively charged stochastic oscillator is implying additional gains in the pair.

As mentioned in the beginning of the article, initial upside limitations could transpire from the cloud’s floor around the 0.6810 barrier, which is overlapped by the diagonal resistance drawn from the 0.7216 high. If the three-week climb from the 0.6528 trough pushes higher into the cloud, the 0.6855-0.6910 fortified resistance border could try to impede additional advances from challenging the descending 200-day SMA at 0.6945. That said, a successful jump beyond the 200-day SMA may cheer buyers to aim for the 0.7052-0.7100 next resistance obstacle.

Alternatively, if gains are capped by the cloud and the 0.6810 barrier, support could commence between the 50-period SMA at 0.6727 and the 0.6700 hurdle. If a more profound retreat unfolds beneath the neighbouring Ichimoku lines, the bears may then target the 0.6590 low before pursuing the 0.6528 trough and adjacent 0.6487-0.6520 base, which extends back to mid-July 2020.

Summarizing, NZDUSD’s bearish bias is being contested by buyers who have managed, in the last three-weeks, to pilot towards the Ichimoku cloud. The bulls could significantly revive upside momentum with a climb north of the cloud, while failing to do so, may prolong dominance of bearish pressures.

Eurozone CPI was finalized at 5.1% yoy in January, up from December's 5.0% yoy. The highest contribution to the annual euro area inflation rate came from energy (+2.80%), followed by services (+0.98%), food, alcohol & tobacco (+0.77%) and non-energy industrial goods (+0.56%).

EU CPI was finalized at 5.6% yoy, up from December's 5.3% yoy. The lowest annual rates were registered in France (3.3%), Portugal (3.4%) and Sweden (3.9%). The highest annual rates were recorded in Lithuania (12.3%), Estonia (11.0%) and Czechia (8.8%). Compared with December, annual inflation fell in eight Member States and rose in nineteen.

Full release here.

The rebound of bitcoin began along with the growth of European stock indices at the beginning of the day. They corrected up after three days of decline on the crisis around Ukraine. Futures for the S&P 500 and Nasdaq, with which BTC has been highly correlated lately, also showed gains on Tuesday.

So far, the rebound of risky assets, which includes cryptocurrencies, can be considered as a movement within a downtrend. Bitcoin has been trying to correct from levels close to the lows of February, but this is probably not the bottom yet.

Expectations of a rate hike by the US Federal Reserve and rising geopolitical tensions are putting pressure on all risky assets. Despite the rather low levels of the Cryptocurrency Fear Index, the history of the indicator suggests that the best moments to enter were periods of falling into the 10 area.

Meanwhile, Ricardo Salinas Pliego, one of the richest Mexican billionaires, called for not selling bitcoin during the fall. In his opinion, BTC will rise in the long term.

Overall, Bitcoin is up 3.6% over the past day to $38,100, closing Tuesday higher after five days of decline. Ethereum gained 6.1% over the same time period, while other leading altcoins from the top ten showed mixed dynamics: from 4% growth in XRP to 13% in Terra.

The total capitalization of the crypto market, according to CoinGecko, decreased by 1.5% over the day to $1.79 trillion. Altcoins grew worse than the first cryptocurrency, which led to an increase in the Bitcoin dominance index by 0.4%, to 40.3%.

The index of fear and greed turned back again, losing 5 points to 25 and remaining in a state of “extreme fear”.

EURGBP continues its descending trend and has yet to break its series of successive lower lows as negative forces linger. Moreover, the pair is trading well below the 50- and 200-day simple moving averages (SMAs), maintaining an overall bearish outlook.

Short-term momentum indicators are reflecting a negative bias as the RSI is located below its 50 neutral mark. In addition, the MACD is found below zero and its red signal line, which indicate that the negative momentum might be gaining further ground.

Should the bears maintain control, initial resistance might be found at the 0.8304 obstacle, before sellers shift their attention towards the 0.8284 hurdle. Crossing below the latter could intensify selling pressures, opening the door towards the July 2016 low at 0.8248.

On the flip side, if buyers resurface, their first target might be the region which includes the 0.8378 level and the 50-day SMA, before eyeing the October low at 0.8401. A decisive move above this point could increase positive momentum, sending the price to test the February high at 0.8477, before taking aim at the region which encapsulates the 200-day SMA currently at 0.8493 and the 0.8500 hurdle.

In brief, the overall outlook for the pair is bearish . For sentiment to change, buyers would need to break above the 200-day SMA.

• Asian stocks higher, US and European futures in the green
• Western sanctions against Russia far from harshest scenario
• Geopolitical fears most evident in commodity’s surge
• Global markets remain sensitive to threat of a deeper invasion

Markets are peeking out from behind the risk-off curtain, as sanctions announced by the US, UK, and Europe against Russia didn’t live up to the market’s worst fears. Most Asian markets are rising alongside European and US equity futures, as equity bulls attempt to pull the S&P 500 out of a technical correction once more. Meanwhile, safe havens have moderated with spot gold easing back below $1900, Treasury yields are pushing higher, and the dollar is ceding ground to most of its G10 peers.

Instead of sending the strongest message possible , the first tranche of sanctions by Western allies are seen as mere thumbtacks that only induce limited discomfort on Russia, at least for now. Some of the sanctions on Russian banks are largely symbolic and have limited impact on its financial dealings with the rest of the world. Although the Western allies have highlighted further scope for economic retaliation, Tuesday’s announcements suggest more leeway for Russia in the interim, noting that the EU’s measures still require confirmation from member states, while US lawmakers continue wrangling over a bipartisan package of Russian sanctions.

Still, the potential ramifications from the Ukraine crisis have been felt more keenly within the commodities complex. Natural gas futures in Europe surged by 10% after Germany halted the approval of the Nord Stream 2 pipeline. On Tuesday, Brent futures took a massive stride towards $100, aluminum traded close to its all-time high, and wheat futures in Chicago saw their biggest single-day advance since 2018. Further economic sanctions that make commodities scarcer could ramp up global inflationary pressures, which in turn could further drain risk appetite.

The Ukraine crisis has added to the wall of worries that market participants are contending with, including signs of persistently elevated inflation and the risk of a Fed policy error. Global financial markets are expected to remain sensitive to every development and nuance in this standoff between Russia and the West, with investors and traders bracing for the unending barrage of headlines headed their way.

USDJPY came close to breaking the 20-day simple moving average (SMA) and the 115.00 round number on Tuesday, remaining above the Ichimoku cloud and within the upward sloping channel in the medium-term.

According to the RSI, the market could maintain positive momentum in the short-term as the indicator is positively sloped above its neutral threshold of 50, while the %K line of the Stochastics suggests that the market is heading north after the bullish cross with the %D line.

On the upside, the price could attempt to overcome the red Tenkan-sen line at 115.40, which if successfully broken, could open the door for the five-year high of 116.36. Should traders continue to buy the pair above that peak, bringing the long-term uptrend back into play, resistance could then run towards the 118.60 mark, registered in January 2017.

A reversal to the downside; however, could find immediate support at the lower surface of the Ichimoku cloud at 114.40, while slightly lower the 114.15 key-level could also come into view. If the latter fails to halt bearish movements, the next target could be the 113.40 support, which is holding below the ascending channel.

Turning to the medium-term trading, the outlook is positive over the past four months and only a decisive close below the 200-day SMA at 112.20 may change this outlook.

EUR/USD

The depreciation of the single European currency was limited to just above the support zone at 1.1322 and the expectations for today’s trading session are for the pair to consolidate in the range of 1.1322 – 1.1369. However, if the bears prevail in this situation and manage to violate the mentioned support, then it is possible to witness another wave of depreciation of the euro against the greenback, but this time – towards the next more significant support area at 1.1270. The first important resistance level for the bulls is located at 1.1370, where a breach may lead the pair towards a test of the psychological level at 1.1400. Today, increased activity can be expected around the release of the CPI data for the EU (10:00 GMT), as well as following any news concerning the situation in Ukraine.

USD/JPY

After the unsuccessful test of the resistance level at 115.70, the pair is now consolidating in the range of 114.90 – 115.26. A confirmed breach of the resistance at 115.26 would pave the way for the pair towards the next resistance at 115.70. On the other hand, if the bears regain control and manage to overcome the support zone at 114.90, then this would most probably result in an attack on the next support lying at 114.58.

GBP/USD

After the unsuccessful attempt of the bears to violate the support at 1.3540, the sterling recovered some of its losses against the U.S. dollar, and at the time of writing this analysis, the pair is headed towards a test of the resistance at 1.3613. A successful breach of this level would most probably lead to a further appreciation of the sterling towards the psychological level at 1.3700. However, the mentioned resistance was an obstacle for the bulls many times during the last weeks and the expectations therefore are for this level to only be tested and for the pair to bounce back and make an impulsive downward movement towards the support zone at 1.3540.

EUGERMANY40

After the massive sell-off that began in the beginning of the week, the bears started to take their profits around the level of support at 14410 and the index partially recovered its losses. The recovery may be considered as a short-lived correction and the bears would probably try to regain control and head the price towards another test of the critical support level at 14410. A breach of this level could be considered as a signal for a continuation of the downtrend and the next target for the bears would be the support at 13550. In the opposite direction, the first significant resistance lies at 14839. The expectations for today’s trading session are for the trading activity to remain in the range of 14410 – 14839. The situation in Ukraine will remain the main driving force behind the price action during today's session as well.

US30

The downtrend for the U.S. blue-chip stock index continues, with the bulls currently managing to limit the sell-off to just above the support at 33418. We may see a short-term upward correction towards the resistance at 34086, after which the downtrend could continue. A breach of the support zone at 33418 would significantly boost the sell-offs towards the psychological level at 33000.

Trepid sentiment continues to weigh on the Dax. The plunge below the 9-month long consolidation area (14850) may foreshadow a bear market.

As traders grew wary, trapped bulls would look to get out of their positions while the bears saw any rebound as an opportunity to sell into strength. An oversold RSI brought in some bids and 14850 is the immediate resistance.

However, the index would remain under unless it lifts offers around 15200. Otherwise, the psychological level of 14000 would be the next stop.

The sterling whipsawed after BOE officials’ comment about a “modest” rate hike over the coming months. The euro saw strong bids at the base of the February breakout rally (0.8310).

A break above 0.8370 wiped out some selling interest, a prerequisite for a meaningful recovery. 0.8400 is the next resistance and its breach would further boost buyers’ confidence and propel the single currency to the recent high at 0.8475.

On the downside, a bearish breakout would invalidate the rebound pattern and cause a sell-off below 0.8280.