“Just Another Manic Monday”; East-West Tensions Escalate

Michael Moran, Senior Currency Strategist at ACY

28.02.2022 11:30 am

#stocks

RISK OFF as Putin Puts Russian Nuclear Forces on High Alert

Summary: Tin helmets on as traders strap themselves into their desks with FX indications on dealing screens wide and indicative. It’s one of those manic Monday morning starts after risk events over the weekend heightened. The US and European Union agreed to take some Russian banks out off the international SWIFT financial messaging system and freeze the central bank’s reserves. These were part of fresh sanctions introduced after Vladimir Putin ordered Russian nuclear forces to high alert. There were fresh reports that the Ukraine and Russia are set to have negotiations at the border between Ukraine and Belarus. Which saw further choppy movements in thin, pre-Asian trade. The Euro (EUR/USD) which closed on Friday in New York around 1.1270 gapped more than 100 points lower this morning, trading at 1.1135-45. It was risk-off with the Australian Dollar (AUD/USD) opening at 0.7165, down from Friday’s close at 0.7230. Against the haven sought Japanese Yen, the Greenback slid to 115.10 from 115.50. The Euro Yen cross (EUR/JPY), a barometer of risk sentiment, tumbled to 128.35 from late Friday’s 130.20. Volatility extended to all currencies in the risk-off FX environment. The British Pound (GBP/USD) slumped to 1.3330 from 1.3410 on Friday. Over the weekend, the US Dollar rocketed against the Russian Rouble (USD/RUB) to a peak at 89.30, gapping from its Friday open at 81.20. The USD/RUB pair slid back this morning to 82.40. A popular gauge of the Greenback’s value against a basket of 6 major currencies, the DXY (Dollar Index) edged higher this morning to 96.65 from Friday’s close of 96.55. Stocks rebounded late Friday with the DOW soaring 2.85% to finish at 34,048. This morning though, Wall Street equities slid back down with the DOW at 33,510. On Friday, bond yields were mostly higher. The US 10-year treasury note rate was unchanged at 1.96%. Germany’s 10-year Bund yield rose 5 basis points to 0.23%.
Data released on Friday saw Tokyo’s Core CPI climb to 0.5% from a previous 0.2%, higher than forecasts at 0.4%. The UK GFK Consumer Confidence Index slid to -26 from -19. Germany’s (q/q) GDP slid to -0.3% in the latest read, beating median estimates at -0.7%. French February Preliminary GDP (q/q) matched forecasts at 0.7%. The US Durable Goods Orders for January (m/m) climbed to 1.6% against median estimates at 1.1%. US Core Durable Goods Orders (January m/m) rose 0.7% against forecasts at 0.4%. US January Pending Home Sales (m/m) fell to -5.7% in January from a previous -3.8%. US January Personal Income (m/m) beat estimates at 0.0% against -0.3%. US Personal Spending for January (m/m) climbed to 2.1%, higher than median expectations at 1.6%. The US University of Michigan February Consumer Sentiment rose to 62.8, from forecasts at 61.7.

EUR/USD – the Euro continued its slide lower against the Greenback and other currencies. Against the US Dollar, the Euro settled on Friday at 1.1270 before tumbling in early Asia to its current 1.1135-45 level. Over the weekend, tensions between Ukraine and Russia escalated, which weighed on the shared currency. The EUR/USD traded to 1.1117 this morning, its low for this year.
AUD/USD – the risk averse stance of markets weighed on the Australian Dollar. The Aussie slid in early Asian trade to its current 0.7182 from Friday’s close at 0.7230. The AUD/USD pair gapped lower in after the Russia readied its nuclear forces.
USD/JPY – against the Japanese Yen, the US Dollar slid to 115.10 from Friday’s close at 115.5 before climbing back to its current 115.65 in volatile trade. Overnight the USD/JPY pair traded to 114.96. This morning, the Dollar hit a high at 115.74 against the Yen.
GBP/USD – The British currency also had a choppy start. On Friday the GBP/USD pair closed in New York at 1.3410. Early this morning, Sterling opened at 1.3330 in Asia where it currently sits. On Friday, the British Pound traded to a low at 1.3275.

On the Lookout: It’s all eyes once again on developments out of the Ukraine and Russia. On the fundamental side, today’s economic calendar is a busy one. Which will only add to FX volatility.
Japan kicks off with its Preliminary Industrial Production m/m (January) which is f/c at -0.7% from a previous -1.0%. Japan also releases its January Retail Sales (m/m no f/c, previous was at -1.0%; y/y f/c at 1.4% previous was downwardly revised to 1.2% from 1.4%). New Zealand releases its ANZ Business Confidence (no f/c, previous was -23.2). Australia follows with its January Retail Sales (m/m f/c 02% from -4.1%), Australian Private Sector Credit (f/c 0.7% from 0.8%), Australian Company Gross Profits (q/q f/c 2% from 4% - ACY Finlogix). Japan follows with more data, Japanese January Housing Starts (y/y f/c 1.7% from 4.2% - ACY Finlogix). Japanese January Construction Orders (y/y no f/c, previous was 4.8%). Switzerland starts off Europe with its January Retail Sales (m/m no f/c, previous was -2%; y/y no f/c, previous was -0.4%), Swiss GDP Growth Rate (q/q f/c 0.4% from 1.7%; y/y f/c 3.7% from 4.1% - ACY Finlogix). Canada releases its Current Account (f/c +CAD 2.2 billion from a previous +CAD 1.37 billion – FX Factory). Canada’s January PPI follows (m/m no f/c, previous was 0.7%; y/y no f/c, previous was 16.1%), Canadian January ADP Employment Change (no f/c, previous was at 19, 200). The US rounds up the day’s reports with its January Goods Trade Deficit (f/c -USD 99.6 billion from a previous -USD 101 billion), US February Chicago PMI (f/c 63 from previous 65.2). Finally, the US Dallas Fed Manufacturing Index for February (no f/c, previous was at 2).

Trading Perspective: Expect further FX volatility today with focus on Ukraine and Russia. Risk aversion will dominate trade with asset markets under pressure. In the currencies, the Japanese Yen will maintain its advantage while the Euro stays heavy. The weakness in risk currencies like the Aussie, Kiwi, Canadian Loonie and Asian/Emerging Market currencies will continue. While the overall support for the US Dollar will keep the DXY steady. Maintain an open mind on the currencies. Stay flexible and fluid, keep those tin helmets on. Maintain an open mind on the currencies. Stay flexible and fluid, keep those tin helmets on.

EUR/USD – It’s still a sell on rallies on the shared currency with 1.10 on the cards. The Euro currently sits at 1.1150. We can expect immediate support at 1.1120 (Low this morning was at 1.1117). The next support level lies at 1.1090 where a break will see 1.1000, opening the way down to 1.0800. On the topside, immediate resistance lies at 1.1180 followed by 1.1210, 1.1240 and 1.1270. Look for a volatile trade in the EUR/USD pair. Likely range today 1.1110-1.1280. Trade the range with the preference to sell rallies back to 1.1280-1.1300.

(Source: Finlogix.com)

AUD/USD – slip-sliding away, the Aussie Battler will stay heavy in the current environment. The Aussie closed at 0.7230 in New York. Currently AUD/USD trades at 0.7175. For today, immediate support lies at 0.7150 followed by 0.7120 and 0.7090. Immediate resistance lies at 0.7200, 0.7230 and 0.7270. Look for the Aussie to trade a choppy range today between 0.7140-0.7280.
USD/JPY – The Dollar Yen pair is also heating up. On Friday the range was between 115.15-115.76, USD/JPY settling at 115.50. On the day, immediate support is found at 115.30 followed by 115.10 (overnight low traded was 115.15). Immediate resistance lies at 115.75 and 116.05. Look for the USD/JPY pair to trade in a likely range between 115.20-116.20 today. Just trade the range shag on this puppy today.
GBP/USD – Sterling settled at 1.3410 in New York on Friday before sliding in early Asia to 1.3340 on the Ukraine-Russia news over the weekend. Overnight low traded was at 1.3270. On the day, immediate support lies at 1.3300 followed by 1.3270. Immediate resistance is found at 1.3370, 1.3400 and 1.3430 (overnight high traded was at 1.3439. Look for a choppy ride in this currency pair with a likely trading range between 1.3310-1.3410.

“It’s just another manic Monday, wish it was Sunday” NOT. Happy trading all, have a good week ahead.

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