Russia Moves in On Ukraine; FX Muted, AUD, NZD Rebound

Michael Moran, Senior Market Strategist & Trading Mentor at ACY

24.02.2022 08:00 am

#stocks

Stocks Pare Losses; Biden Unveils Sanctions on Moscow
Summary: Asset markets steadied as stocks pared losses after US President Joe Biden unveiled new sanctions against Moscow. Biden also announced he was moving additional troops and equipment to strengthen US allies in the Baltic nations. Yesterday, Russia’s President Putin signed a decree recognising the independence of separatist controlled Donetsk and Luhansk regions, bringing his country a step closer to annexing Ukraine. US President Biden said that he would remain open to talking with Russia to avert an all-out war. Currencies were muted with the Dollar Index (DXY), a favourite gauge of the Greenback’s value against a basket of 6 major currencies, finishing marginally lower. The risk-leading Australian Dollar rebounded 0.54% to 0.7221 from yesterday’s opening at 0.7190. New Zealand’s Kiwi (NZD/USD) rallied 0.68% to 0.6740 from 0.6700 heading into today’s RBNZ monetary policy meeting (12 noon Sydney time). The beleaguered Euro edged higher to finish at 1.1335 after tumbling to an overnight low at 1.1288. Against the Japanese Yen, the US Dollar rose 0.4% to 115.07 (114.77 yesterday). It was risk-on as the USD/CHF pair, the leading barometer, rebounded 0.57% to 0.9211 (0.9160). The Greenback finished mixed against the Asian and Emerging Market currencies. USD/CNH (US Dollar vs Offshore Chinese Yuan) extended its move lower, settling at 6.3220 from 6.3260 yesterday. Against the Thai Baht, the Greenback rallied to 32.45 (32.28).

Wall Street stocks pared their initial losses. The DOW finished little changed at 33,725 after tumbling to a low at 33,352. The S&P 500 was last at 4,315, up modestly from yesterday’s close at 4,293. Global bond yields were mixed. The US 10-year treasury yield was flat at 1.93%. Germany’s 10-year Bund rate climbed 4 basis points t 0.24%. Japan’s 10-year JGB yield eased to 0.19% from 0.20%.

Data released yesterday saw the Bank of Japan’s Annual Core CPI fall to 0.8% from a previous 0.9%, and lower than estimates at 1.1%. UK Public Sector Net Borrowing fell to -GBP 3.7 billion from a previous +GBP 14.6 billion but better than expectations of -GBP 4.3 billion. The UK Conference Board’s Industrial Orders Expectations fell to 20 from 24, lower than estimates at 25. US Flash Manufacturing PMI in January climbed to 57.5 from an upward revised 55.5, and stronger than forecasts at 55.9. US Flash Services PMIs also beat expectations, climbing to 56.7 against 52.9.

EUR/USD – The Euro continued its lacklustre trade hitting an overnight high at 1.1367 before slipping to settle at 1.1335 in late New York. Yesterday the shared currency opened at 1.1310. Overnight low traded for the EUR/USD pair was at 1.1288.
AUD/USD – The Aussie Battler rebounded in typical fashion, jumping to an overnight high at 0.7234 from yesterday’s 0.7190 before easing to 0.7221 at the close. The turnaround from risk-off to the risk-on scenario boosted the Australian Dollar. The Aussie also gained on the crosses against the other major and EMFX.
USD/JPY – Risk-on lifted the USD/JPY pair as haven support for the Japanese currency was unwound. The Greenback closed at 115.07 from 114.77 yesterday. Overnight high traded was at 115.24. The USD/JPY pair hit a low at 114.52 before the strong rebound.
NZD/USD – Like its bigger cousin, the Australian Dollar, the Kiwi rebounded strongly to finish at 0.6740 from yesterday’s open at 0.6700. Overnight low traded for the “flightless Bird” was at 0.6692 before finding its wings and taking off. The RBNZ meets on policy this morning. The New Zealand central bank is widely expected to lift its Overnight Cash Rate by 25 basis points to 1.0% at the conclusion off its meeting today (12 noon Sydney time).

On the Lookout: Today’s economic calendar is light, and markets will continue to monitor the situation between Russia and the Ukraine as well as responses from the US and its Western allies.

Australia kicks off today’s data with its Wage Price Index (q/q f/c at 0.7% from 0.6%) and Construction Work Done (q/q f/c 2.6% from -0.3%). Japanese markets are closed to celebrate their Emperor’s Birthday holiday. New Zealand’s RBNZ announces their interest rate decision (12 noon Sydney) with a Press Conference (1 pm Sydney) following. Europe starts off with Germany’s GFK Consumer Confidence Index for March (f/c -6.2 from -6.7 – Forex Factory). France follows with its Business Confidence Index for February (no f/c, previous was 112 – ACY Finlogix). Switzerland follows with its February Economic Sentiment Index (no f/c previous was 9.5). The Eurozone follows with its Final January CPI (y/y f/c 5.1% from 5% - ACY Finlogic), Eurozone Final January Core CPI (y/y f/c 2.3% from 2.6% - ACY Finlogix). The US rounds up today’s releases with its US Redbook (Sales) Index (no f/c, previous was 15.4% - ACY Finlogix).

Trading Perspective: With a light economic calendar ahead of us, traders will continue to monitor developments on in Eastern Europe. The US continues to insist that the invasion has begun, with little disputing that, except the Russians. The crisis is worsening, but it is still short of an all-out invasion. Expect further sanctions to be unveiled with much uncertainty prevailing.

Overnight, market positioning has given us a clue to what’s going on. As the conflict between Russia and the Ukraine grows more tense, FX traders moved out of the typical havens (CHF and JPY). The DXY (Dollar Index) has lost ground and edged lower. Most Asian and Emerging Market currencies have reversed their losses against the Greenback. Which suggests that that market positioning has been skewed toward a risk-off scenario. A paring of these risk-off positions is natural after it became evident that they could be pushed no further. In the old trading days, the motto of “when in doubt, stay out” would always prevail (The Gulf War, days following 9/11 to name a few). As our ACY chief economist Clifford Bennett pointed out in his videos, position yourself defensively. Keep away from risky currencies unless they are at extremes. Only then can one attempt to pick a bottom, with tight stops. Otherwise, look where the currencies traded over the past 24 hours and use the technical levels that Duncan Cooper, our Senior Market Strategist puts out daily to trade the ranges shag.

EUR/USD – The shared currency continues to trade heavy, albeit in slow grinding fashion. Overnight the shared currency bounced off its lows at 1.1288 to close at 1.1335. The downside still looks to be the vulnerable side, but short market positioning is growing. For today, immediate support lies at 1.1300 followed by 1.1280. A break of 1.1280 will yield 1.1250 and possibly lower towards strong support at the 1.1180-1.1200 level. Immediate resistance can be found at 1.1365 and 1.1395. Look for the Euro to drift lower in a likely range today of 1.1270-1.1370. Selling rallies still the way to go in this currency.
AUD/USD – the Australian Dollar bounced back in true Battler fashion, squeezing out the weaker shorts. Overnight the AUD/USD pair traded to a high at 0.7234 before settling at 0.7221 at the close. Yesterday the Aussie opened at 0.7190. The Australian Dollar continues to grind higher mainly on short covering. Immediate resistance lies at 0.7240 followed by 0.7270 and 0.7300. Immediate support can be found at 0.7200, 0.7180 and 0.7150. Look for the Aussie Dollar to trade in a likely range between 0.7180-0.7230. Preference is to sell rallies to 0.7230-50.
USD/JPY – the Greenback gained ground against the Japanese Yen in choppy trade as haven positions were unwound. Overnight the USD/JPY traded at a high at 115.24 before easing at the NY close to 115.07. Yesterday the USD/JPY pair opened at 114.77. Overnight low traded was at 114.52. For today, immediate resistance lies at 115.25 followed by 115.55 and then 115.85. Immediate support can be found at 114.80 and 114.60. Look for consolidation in a likely range today of 114.60-115.30. Just trade the range shag on this puppy today.
NZD/USD – the Kiwi could be in the limelight today as we head into the RBNZ meeting and rate announcement. Overnight the NZD/USD pair rallied to a high at 0.6755 on the broadly based weaker US Dollar and stronger risk and EM currencies. The Kiwi closed at 0.6740. Immediate support for today lies at 0.6710, 0.6680 and 0.6650. On the topside, immediate resistance can be found at 0.6760, 0.6790 and 0.6810. Look for a choppy day today in the Kiwi. Preference is to sell rallies but stay cautious. The RBNZ is expected to hike rates by 0.25 basis points to 1.0%. If a hike by 0.25 bp is followed up with hawkish rhetoric or the RBNZ surprise with a 0.5 bp rate rise, the Bird will soar like an eagle. On the other hand, a dovish bent from the New Zealand central bank will see the Bird shot down. Either way, we could be in for some fireworks. Happy days!

(Source: Finlogix.com)
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