Crude oil started to sell off very soon after we published yesterday’s report. We warned about the market being quite extended and vulnerable to good news. It was our view that if Russia decided to withdraw its troops from the Ukraine border, there could be a sizeable corrective move in the price of oil. Oil sold off sharply (over 4%) as the news came out that the military drills are now over and some of the troops will be withdrawn from the Ukraine border. DAX was another success story yesterday. The market rallied substantially on the news and reached the area we had predicted. In this report, we cover these markets again as they are still likely to be key markets that experience volatility due to their sensitivity to the potential Russian military aggression in Ukraine. Heads up for the UK and Canadian CPI and FOMC Meeting Minutes releases. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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USOIL started to sell off very soon after we published yesterday’s report (here) in which we warned about the market being quite extended and vulnerable to good news. We said that if Russia decided to withdraw its troops from the Ukraine border, the price of oil could correct below the bull channel low. Oil sold off sharply (over 4%) as the news came out that the military drills are now over and some of the troops will be withdrawn from the Ukraine border. However, when it was clear that only a very small portion of the troops was withdrawn the price started to recover and didn’t penetrate the bull channel low. In fact, it was exactly the low of our bull channel that turned the market higher. The bull trend is therefore still intact – for now. This increase in volatility makes this market even more interesting for day traders. Swings have been big and are likely to be sizeable also in the future. The nearest key support and resistance levels are at 87.45, 89.01 and 94.
EURUSD was strong after we pointed out that it broke out from a channel within a channel and expected the pair to test the nearest resistance area (1.1330 – .1340). EURUSD was propelled higher as some of the Russian troops were reported to be sent back to the barracks. The pair penetrated the resistance levels and after a successful test of the wider channel top, the pair looks like it’s ready to challenge and possibly clear the resistance at 1.1369. This would open a way to the 1.1396 – 1.1413 range. A failure to penetrate the level would be likely to bring the pair again down to 1.1321. The real action in this pair is probably going to take place at 7 pm GMT as the FOMC Meeting Minutes are released.
USDCHF continued to trade with no real directional conviction yesterday and the move below the rising trendline was quite brief. If the pair cannot trade above yesterday’s high we should see another push below the channel low. This would increase the risk of the market breaking below the 0.9222 support level. Should this happen, it’d be likely that the 0.9179 support comes into play again. This is where a measured move points to. Alternatively, if we see a rally from the trendline the 0.9290 resistance could be tested again.
DAX rallied strongly after it penetrated the key price level we focused on yesterday (here). It was our view that if the index can rally decisively above the 15120 resistance level we could see a move to the 15274 – 15290 area. This prediction was correct and the positive news from the Ukraine border helped the market to rally even further. DAX is now trading near to the channel high (15533) and a resistance created by a swing high at 15511 while the nearest key support area is at 15120 – 15160. The nearest key resistance level above the channel top is at 15615.
The bulls might become a little hesitant close to the resistance levels. We might see some traders taking some profits and possibly waiting for more newsflow on Ukraine. if yesterday’s positive news from the Ukraine border aren’t collaborated by evidence the index might retrace lower while some proof of meaningful withdrawal of Russian troops would certainly help the bulls in their efforts. The game plan for today is to follow the price action in intraday resolutions and see if there is newsflow that’s moving the market in either direction.
Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed could be hiking rates significantly this year and even raise the rates by 50 basis points per FOMC meeting (instead of the normal 0.25%). The Fed believes that rates could rise significantly before hurting employment.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US Congress has passed a $1.2 trillion infrastructure spending plan.|
|Yields||In Q3 and Q4 2021, the benchmark 10-year US Treasury yield ranged between 1.1720% and 1.6830%. The hottest inflation readings since 1982 have pushed the 10 yr. yield higher as bonds have been selling off.|
|Employment||The January non-farm payrolls increased by 467K while the analysts had expected only 110K new jobs. Average hourly earnings were confirmed at a much better level than predicted (0.7%, 0.5% expected).|
|Inflation||The annual headline inflation reading for January came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- GBP – CPI
- CAD – CPI
- USD – Retail Sales and Core Retail Sales
- USD – Industrial Production m/m
- USD – Crude Oil Inventories
- USD – FOMC Meeting Minutes
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- Only 10K Russian troops withdrawn from the Ukraine border
- ZEW Economic Sentiment (48.6, 54.4 expected)
- German ZEW Economic Sentiment (54.3, 55.1 expected)
- US PPI (1.0%, 0.5% expected)
- Empire State Manufacturing Index (3.1, 11.9 expected)
- No indication yet that Putin has decided to invade Ukraine further
- UK Prelim GDP q/q (1.0%, 1.1% expected)
- US Prelim UoM Consumer Sentiment (61.7, 67.2 expected)
- US Wholesale Inventories 2.2% vs 1.7% prior
- US Average Hourly Earnings m/m (0.7%, 0.5% expected)
- US Non-Farm Employment Change (467K, 110K expected)
- US Unemployment Rate (4.0%, 3.9% expected)
- Canadian Ivey PMI (50.7, 55.1 expected)
- BOE hikes 0.25% as expected
- ECB keeps the rates at 0% but turns less dovish
- ISM Services PMI 59.9 (59.5 expected)
- Unemployment Claims 238K (245K expected)
- OPEC to increase oil production by 400k BPD from March onwards
- BOC Macklem: higher rates needed to tackle inflation
- ADP Non-Farm Employment Change -301K (185K expected)
Chief Market Analyst
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