Euro, EUR/USD, US Dollar, DAX, Crude Oil, JPY, CHF, NOK, SEK, Russia – Talking Points
- The Euro slid lower to start the week on a volatility breakout as geopolitical risks rise
- APAC equities softened while Euro and US stocks are set to sink further
- Commodity markets have exploded on supply concerns in energy and wheat
- All eyes on Russia, Ukraine tensions.Will EUR/USD make a new low?
The Euro is under pressure again after a weekend of announcements saw a rush to haven currencies such as the US Dollar, Japanese Yen and the Swiss Franc.
The Norwegian Krone and the Swedish Krona were the notable underperformers to start the week, despite crude oil surging higher.WTI is above US$ 97 bbl while Brent remains above US$ 103 bbl.
The markets perceive that OPEC+ will stick to their production output quotas when they meet on Wednesday.
All energy commodities have been boosted by a lack available supply due to Russian oil and gas now being severely disrupted. Gold remains above US$ 1,900 per ounce.
Soft commodities are mostly higher while wheat has rocketed up with Ukrainian and Russian supplies now offline for the foreseeable future. The two countries supply around 25% of global wheat demand.
Despite higher commodity prices across the board, AUD and NZD are sliding lower as risk-off and growth concerns are the focus for the market. Russia has the 11th largest GDP in the world.
The swathe of sanctions announced over the weekend include a ban on any payments by a Russian bank via SWIFT, seizing the Russian central bank’s assets globally, confiscating Russian oligarchs’ offshore assets and banning Russian exports.
The shutting out of Russia from the SWIFT payment system is being compared by some in the market to a “Lehman moment”. The impact might be long-reaching and has the potential for unintended consequences.
The final outcome in 2008 was not as bad as initially feared, but it took a long time to untangle the plethora of International Swaps and Derivatives Association (ISDA) agreements.
Bloomberg is reporting that Chinese banks are not facilitating payments linked to Russian commodity transactions.
In any case, what we are seeing at the moment is the redeployment of capital. US Treasury yields are lower across the curve as investors buy high-quality assets. The benchmark 10-year is trading near 1.89%
Conversely, futures markets are pointing toward a negative start for both the European and North American equity indices. The Euro Stoxx 50 and Germany’s DAX index are looking at losses of more than 3% to start the day.
The DAX is coming under particular scrutiny as Germany relies heavily on Russian energy to feed industrial production.
Asian equities were generally softer, with the exception of Australia’s ASX 200 due to the strong commodity outcome.
A bigger question is lurking around the corner and that is, what does all of this mean for the next FOMC meeting of the Federal Reserve?
A March hike had been baked in, but some questions might now emerge, depending on how this pans out in the coming weeks.
Looking ahead, after Swiss GDP numbers, the US will see inventories and PMI data.
EUR/USD Technical Analysis
EUR/USD has seen an explosion in volatility with large daily ranges over the last 3 days. The pierce below the previous low has been initially rejected but it is now vulnerable once again.
These stretched moves lower have seen the price move below the lower band of the 21-day simple moving average (SMA)based Bollinger Band.
A sustained moved outside the band may indicate ongoing volatility and bearish momentum could unfold. Should the 21-day SMA cross below the 55-day SMA, this might confirm bearish momentum.
Support may lie at the previous lows of 1.11215 and 1.11065.
On the topside, nearby resistance could be at the pivot points of 1.12802 and 1.13751 and the prior high of 1.13959.
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter
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