Russia-Ukraine Tensions Heighten; Bond Prices Soar, Stocks Tumble

Michael Moran, Senior Market Strategist & Trading Mentor at ACY

18.02.2022 02:15 pm

#stocks

Yen, Swiss Franc Grind Higher, Sterling Shines; Euro, Aussie Slide

Summary: Stocks tumbled, bond prices soared, metal prices rallied, and yields fell as the ongoing conflict between Russia and the Ukraine over its border escalated. Evidence grew that Russia was moving toward an imminent invasion. At this time of writing, the DOW was down 1.75% (34,322) while the S&P500 lost 2.05% to 4,385 (4,465 Wednesday). The benchmark US 10-year bond yield slumped 8 basis points to 1.97%. Risk-off saw precious metals take off. Gold jumped 1.55% to US$1,899 (US$ 1,870) while Silver rose 0.94% to US$23.80 (US$ 23.40). In FX, the flight-to-quality saw the Japanese Yen and Swiss Franc as best performers. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, gained mildly to 95.82 from 95.75. Against the Japanese Yen, the US Dollar slid 0.39% to 114.95 (115.60). The USD/CHF pair (US Dollar-Swiss Franc) dipped 0.28% to 0.9200 from 0.9230. Sterling gained 0.29% against the US Dollar, the GBP/USD pair settling at 1.3620 (1.3565). The Euro was little changed, settling at 1.1362 from 1.1360 on Wednesday. Risk and Asian/Emerging Market currencies were mixed. The Australian Dollar (AUD/USD) dipped to 0.7190 from 0.7197 while the Kiwi (NZD/USD) edged up to 0.6690 from 0.6675. The USD/CNH pair (US Dollar-Offshore Chinese Yuan) dipped to 6.3340 from 6.3370. Against the Singapore Dollar, the Greenback (USD/SGD) was flat at 1.3440.

Economic data released saw Australia’s economy create 12,900 Jobs in January, beating median expectations of 0 gains. The Unemployment rate was unchanged at 4.2%. Switzerland’s Trade Surplus fell to +CHF 3.18 billion from a previous downward revised +CHF 3.54 billion, and lower than estimates at +CHF 4.23 billion. Italy’s Trade Surplus fell to +EUR 1.1 billion from a previous +EUR 4.18 billion, and lower than estimates at +EUR 5.11 billion. The US Philly Fed Manufacturing Index slid to 16 from a previous 23.2 and lower than expectations of 19.9. US Weekly Unemployment Claims rose to 248,000 from 225,000, and higher than estimates of 217,000. US January Building Permits climbed to 1.90 million from 1.89 million, beating forecasts at 1.74 million. Housing Starts fell to 1.64 million from 1.71 million, and lower than estimates at 1.70 million.

EUR/USD – the Euro finished little changed despite an escalation in the Russian-Ukraine border conflict. EUR/USD settled at 1.1362 in late New York, against its 1.1360 finish yesterday. Overnight the shared currency traded to a low at 1.1323 before rallying at the close of trading. The overnight high traded was at 1.1386.
AUD/USD – The Aussie managed to hold its ground despite the market’s risk-off stance, dipping modestly to 0.7190 from 0.7197. Overnight, the AUD/USD pair tumbled to a low at 0.7149 before rebounding to its New York close. Better-than-expected Australian Employment gains supported the Aussie Battler.
USD/JPY – the haven sought Japanese currency gained support from risk-off. The Dollar fell against the Yen to finish at 114.95 from 115.60 on Wednesday. Overnight low traded was at 114.85. The Japanese currency was also stronger against the other currencies.
GBP/USD – Sterling soared against the US Dollar to an overnight and one-week high at 1.3638 after closing on Wednesday at 1.3535. The British Pound settled at 1.3620 at the close of New York trade earlier this morning. Overnight low traded was at 1.3555. Continued speculation for additional BOE rate hikes in 2022 have buoyed the GBP/USD pair.

On the Lookout: Today’s economic calendar is light. Markets will continue to monitor the situation between Russia and Ukraine. New Zealand kicked off today’s reports with its Q4 PPI Input which fell to 1.1% against forecasts at 2.0% and a previous 1.6%. New Zealand’s PPI q/q Output was also lower to 1.4% against expectations of 1.9% and a previous 1.8%. Japan follows next with its National Core CPI (f/c 0.3% from a previous 0.5% - ACY Finlogix). Japan’s January Headline CPI follows (no f/c, previous was 0.8%). France starts off European reports with its Unemployment Rate (f/c 7.8% from 8.1% - ACY Finlogix). The UK is next with its January Retail Sales (m/m f/c 1% from -3.7%; y/y f/c 8.7% from -0.9% - ACY Finlogix). France follows with its January Final CPI report (m/m 0.3% from 0.2%; y/y f/c 2.9% from 2.8% - ACY Finlogix). The Eurozone releases its December Construction Output (y/y no f/c, previous was 0.5%). Canada kicks off North America with its December Headline Retail Sales (m/m f/c -2.1% from previous 0.7% - ACY Finlogix). Canada’s December Retail Sales Ex Autos (m/m f/c -2% from previous 1.1%). The Eurozone releases its Flash February Consumer Confidence (f/c -8 from previous -8.5 – ACY Finlogix). The US rounds up today’s economic reports with its January Existing Home Sales (f/c 6.1 million from previous 6.18 million). US Conference Board’s Leading Index for January (f/c 0.2% from previous 0.8%) round up today’s economic data.

Trading Perspective: Risk-off will continue to support the US Dollar against most of its Rivals to varying degrees. Expect the haven sought Japanese Yen and Swiss Franc to outperform their peers. The Euro will stay weak given its proximity to Russia and the Ukraine. Emerging Market and Asian currencies will remain vulnerable. The prospect of an outright war between Russia and the UK has been so close, touch and go really. It’s surprising that it hasn’t happened yet. The possibility is still very real, and even closer today. Which will keep risk-off elevated and the Greenback underpinned. FX volatility will stay high and may rise further. The pressure will remain on the asset markets. Expect Asian stocks to be sold off as soon as the bell rings. Bond prices will keep rising and yields may ease further. We can expect a choppy Friday to finish an already eventful week.

EUR/USD – slip-sliding away, the shared currency remains the underperformer in FX. Expect more selling pressure to push the EUR/USD pair towards its overnight low which was at 1.1323. The Euro closed at 1.1362, where it currently trades. Immediate support for today lies at 1.1330 followed by 1.1300. Immediate resistance can be found at 1.1390 (overnight high traded was at 1.1386). The next resistance level lies at 1.1420. Look for the Euro to consolidate in a likely range today between 1.1330-1.1390. It’s Friday, anything can happen, stay flexible and trade the range.
AUD/USD – the Australian Dollar closed little changed at 0.7190 from 0.7197 on Wednesday. Given the risk-off stance, I would’ve thought the Aussie Battler should be lower. It isn’t. Which suggests some weak shorts may need to be covered before another probe on the downside. For today, expect immediate resistance at 0.7200 and 0.7230. Immediate support lies at 0.7170, 0.7150 and 0.7120. Look for the Aussie Battler to trade a likely range today of 0.7140-0.7210. Be flexible, the preference is still to sell rallies.
USD/JPY – the Greenback slid against the haven sought Japanese currency to finish at 114.95 from 115.35 yesterday. Haven flows continued to provide good support for the Yen. On the day, immediate support for the USD/JPY pair lies at 114.85 (overnight low traded). The next support level is found at 114.65 and then 114.45. A break below 114.45 should see the 114.00 level tested. Immediate resistance can be found at 115.10 followed by 115.40 and 115.70. Risk-off favours a downside test, however, expect Japanese importers to be on the bid. Likely range today of 114.70-115.40. Just trade the range shag on this one today.

(Source: Finlogix.com)

GBP/USD – expectations of a more hawkish outlook by the Bank of England as moves to raise rates have underpinned the British currency. The growing conflict between Russia and the Ukraine has not impacted Sterling like the other European currencies. For one, the UK is second only to Norway in oil and gas production. GBP/USD closed at 1.3620 (1.3565 Wednesday). Immediate resistance lies at 1.3640 (overnight high 1.3638). The next resistance level is found at 1.3670. On the downside, support lies at 1.3600, 1.3580 and 1.3550. Look for a further choppy trade in this currency pair. Look to trade a likely range today of 1.3550 and 1.3650.

It’s Friday today! Happy trading all, and a top weekend ahead.

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