Market Focus

U.S. equity futures wavered early Monday and stocks appeared set for a cautious open as investors assessed geopolitical worries about Ukraine that sparked risk aversion at the end of last week. Dow Jones dropped 1.43% to 34738.06 during Friday’s trades, while the tech-heavy Nasdaq slumped worse, closing 2.78% lower than its Friday’s open.

Tensions over Russia’s military buildup near Ukraine are entering a potentially decisive week, with the U.S. warning that an invasion may be imminent and President Vladimir Putin accusing America of failing to meet his demands. U.S. National Security Advisor Jake Sullivan, who on Friday cited the risk that Russia will attack or seek to ignite conflict within Ukraine this week, told CNN on Sunday there’s “a distinct possibility that there will be major military action very soon.”

The U.S. and its European allies have been pressing Putin for weeks to pull back an estimated 130,000 troops massed near Ukraine, but a frenzy of diplomatic activity — including key leaders cycling through Moscow for talks with Putin — has failed to produce an off-ramp.

A phone call on Saturday between Putin and U.S. President Joe Biden that went for just over an hour saw them reiterate their positions without any apparent progress. Russia has repeatedly denied its plans to invade its neighbour, with Russian officials accusing the U.S. of stoking “hysteria.”

Even as the U.S. and Europe threaten what they say would be severe economic penalties for Moscow, there are differences about how large their responses would be, especially for countries like Germany that rely on imports of Russian gas. Cutting Russia off from the global payments system known as Swift is highly unlikely. Biden has also said that he would not send U.S. troops into Ukraine in the event of a conflict.

Main Pairs Movement

After Thursday’s rally amid record CPI data, US bond yield slumped heavily as a strong correction shocked during Friday’s trading. Despite the declining yields, the dollar index still closed the day in the green, up 0.25%, although volatility was enlarged during the intraday trades.

With a stronger greenback, most of its peers suffered losses on Friday. The Euro pair plummeted 0.72% to 1.1345, while the Cable defended its previous levels, closing the day in mere losses at 1.3514. Earlier on Thursday, the European Commission raised its inflation forecast for this year from 3.5%, but still expects inflation to fall to 1.7% in 2023.

Gold surged a significant 1.77% to $1,858.98 a troy ounce, even once topping at $1,865.47, a level last seen in November 2021. Crude oil prices also bounced hugely amid the market fear of Russia-Ukraine conflict escalation. WTI closed 4.27% higher at $93.88 a barrel and Brent up 3.92% to $94.94.

 

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined on Friday, extending its slide to 1.1390 area post-US CPI report. The pair was trading lower and dropped to a daily low below 1.1380 level, but then bounced back slightly to erase some of its intraday’s losses. The pair was last seen trading at 1.1387, posting a 0.35% loss on a daily basis. EUR/USD stays in the negative territory amid rebounding US dollar, as investors continue to evaluate the recent multi-decade high in US inflation in January, which might add pressure on the Fed to tighten monetary policy. In Europe, the data from Germany showed that the Final Germany CPI came at 0.4% MoM in January, matching market expectations. Meanwhile, speculations of a potential rate hike by the ECB at some point by year-end could limit the losses for EUR/USD.

For the technical aspect, RSI is at 46 as of writing, suggesting that the downside is more favoured as the RSI has stayed below the midline. As for the Bollinger Bands, the price is moving alongside the lower band, which indicates that the pair could retain its downside traction. In conclusion, we think the market will be bearish as long as the 1.1480 resistance line holds. EUR/USD could extend its slide toward 1.1350 amid the bearish shift in the RSI indicator.

Resistance: 1.1480, 1.1600

Support: 1.1323, 1.1284, 1.1132

 

GBPUSD (4-Hour Chart)

GBP/USD edged higher on Friday, attracting some dip-buying amid modest US dollar weakness. The pair was surrounded by bearish momentum and touched a daily low during the Asian session, but started to see fresh buying while recovering its daily losses. At the time of writing, Cable stays in positive territory with a 0.38% gain for the day, continuing to climb higher amid renewed US dollar weakness. Retreating US Treasury bond yields undermined the Greenback, which consolidated its daily losses heading into the weekend. Meanwhile, UK GDP data showed that the economy expanded by 1% during the fourth quarter of 2021, coming in slightly lower than the market expectation. But the number failed to provide trading impetus to Cable.

On the technical side, the RSI is at 58 figures as of writing, suggesting bullish movement ahead. As for the Bollinger Bands, the price continued heading north and just moved out of the upper band, so a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.3633 resistance line. If the pair rise above that level, it could push higher toward 1.3700 mark. And the 1.3512 level had provided firm support to Cable.

Resistance: 1.3633, 1.3739

Support: 1.3512, 1.3456, 1.3372

 

USDCAD (4-Hour Chart)

After the previous day’s rally to the 1.2750 area, USD/CAD failed to preserve its bullish momentum and retreated from a weekly high amid weaker US dollar across the board. The pair started to see fresh selling after the European session started, now remaining under pressure below the 1.2700 mark. USD/CAD is trading at 1.2689 at the time of writing, losing 0.26% on a daily basis. The greenback was dragged down by retreating US Treasury bond yields, as the DXY index pulled back to 95.70 area. On top of that, surging crude oil prices also underpinned the commodity-linked loonie, as the markets believe that the global oil supply would remain tight. Meanwhile, the conflict between Russia and Ukraine might keep acting as a tailwind for black gold. WTI revisited $91 again and posted a 1.58% gain on a daily basis.

On the technical front, the RSI is at 47 as of writing, suggesting that the pair could extend its downside movement as the RSI keep heading south. As for the Bollinger Bands, the price has crossed below the moving average and drop towards the lower band, indicating a continuation of the downside traction. In conclusion, we think the market will be bearish as the pair is heading to re-test the 1.2665 support, a break below that level could open the door for additional losses.

Resistance: 1.2778, 1.2829

Support: 1.2665, 1.2575, 1.2462