Ukraine crisis weighs on Euro

  • EUR/USD dropped after confirmation of Putin’s recognition of breakaway Ukrainian regions which triggered fears of further escalation.
  • US President Joe Biden has signed an executive order to prohibit trade and investment between US individuals and the two breakaway regions of eastern Ukraine.
  • Federal Reserve sentiment favors the US dollar and adds pressure to the Euro.

 

Euro dipped against the US dollar during Tuesday Asian session, weighed by risk-off tones after critical developments at the Kremlin.

Investors brace for heavy fall in the financial Markets after Vladimir Putin upped the ante in a crisis the West fears could unleash a major war.

In a lengthy televised address, the Russian president recognised two breakaway regions Donetsk and Luhansk in eastern Ukraine as independent entities and described Ukraine as an integral part of Russia’s history. Whether the action was the start of an invasion of Ukraine is not clear yet, but the West has begun to respond by preparing sanctions.

Meanwhile, President Joe Biden issued an executive order that White House spokesperson Jen Psaki said would “prohibit new investment, trade, and financing by U.S. persons to, from, or in the so-called DNR and LNR regions of Ukraine,” referring to the self-proclaimed Donetsk People’s Republic and the Lugansk People’s Republic.

Psaki said additional measures would come on Tuesday. Those, according to another White House spokesperson, would be directed at Russia.

Amidst the geopolitical tension in Ukraine weighing on Euro, Hawkish Fed speak on Monday also underpinned the bearish trend of EUR/USD.

FOMC member Michelle Bowman said it was too early to know if the US economy needs a 50bps rate hike in March, the topic was on the table for officials to debate. This comes before data that will likely show the Fed’s key inflation index has jumped to a new four-decade high in January, thus rising the expectation for higher rates.

EUR/USD 4 Hour Chart:

Support: 1.1280 (S1), 1.1251 (S2), 1.1196 (S3).

Resistance: 1.1364 (R1), 1.1419 (R2), 1.1448 (R3).

Russia – Ukraine jitters weighs on the Euro. We expect a bearish trend for EUR/USD.

Upbeat Retail Sales data favors Pound

  • Sales volume in the UK in January rose 1.9% better than the forecast and the prior data, favoring the pound.
  • The recent headline “President Biden has “agreed in principle” to meet the Russian leader if there is no invasion” has improved Market sentiment.
  • Central Bank speeches remain on traders radars, with rate hike expectation from BoE.

 

The British sterling is trading higher at the start of the week. Pound gained strength amidst upbeat UK Retail Sales data, expectations of rate hikes from the Bank of England and risk on mood by Russian diplomacy.

Sales volumes in the UK in January rose 1.9%, exceeding the forecast a 1.0% rise, as consumers began to return to more normal buying behaviors after a 4% drop in December 2021. This upbeat data favored the pound on the basis that the Bank of England would be expected to hike rates in March following hotter Inflation data published last week showing inflation rising to a nearly 30-year high.

Optimism over Russian diplomacy also favors the pound.  Joe Biden and Putin have accepted “the principle” of a summit over Ukraine.  The caveat to such a meeting is that it will only take place so long that there is no invasion of Ukraine. However, No date has been confirmed with Putin so far, the White House spokesman said.

Biden stepped up his warnings about Moscow’s plans on the weekend after he saw evidence that an attack on Ukraine was imminent. Officials say Satellite images show a new phase of Russian military readiness and the US has intelligence that the Kremlin ordered an invasion prompted the latest Biden warning. Also, the US is prepared to impose swift and severe consequences if Russia invades, adding that Russia appears to continue preparations for a full-scale assault on Ukraine very soon.

On the other hand, Russia’s first deputy permanent representative to the United Nations Dmitry Polyanskiy said on Sunday that The assessments of U.S. and British spies on Ukraine cannot be trusted. He said “We don’t trust the U.S. and British intelligence, they let us down, the whole world, on many occasions enough to remember weapons of mass destruction in Iraq.”

Traders await central banks speeches due this week. Bank of England (BOE) Governor Andrew Bailey will appear before the Treasury Committee on Wednesday. Several U.S. Federal Reserve policymakers will also speak throughout the week, and investors looking for clues that a large 50 basis point rate hike could come at the Fed’s March 2022 meeting, instead of the more widely expected 25 basis point increase.

Meanwhile, The BOE is also widely expected to hike rates again at its March meeting which favors the pound.

GBP/USD 4 Hour Chart:

Support: 1.3559 (S1), 1.3531 (S2), 1.3490 (S3).

Resistance: 1.3629 (R1), 1.3670 (R2), 1.3698 (R3).

The upbeat UK retail data, Rate hike expectation from BoE and Optimism over Russian diplomacy favors the sterling. We expect a bullish trend for GBP/USD.

BTC/USD Weekly Forecast (21st February 2022 – 25th February 2022)

Fundamental view:

Bitcoin dropped against the US dollar during the trading course of the week and is trading around $40000. The worsening situation in Ukraine is the major catalyst prompting investors towards safe haven asset and pullback from perceived riskier asset – Bitcoin. The Market participants largely ignored the Fed minutes.  Russia deployed troops to the region, and Western nations feared an invasion. Moscow wants Ukraine to be permanently barred from joining the North Atlantic Treaty Organization  (NATO) and want to cease all military activity in Eastern Europe. The West has aligned behind Kyiv, and at some point, Russia announced it would pull back troops, although in reality, it has done the opposite.  Risk off sentiment intensified on the US’s warnings over a potential Russian incursion of Ukraine, weighing on the perceived riskier asset – Bitcoin.

The FOMC meeting minutes was released on Wednesday. Inflation was mentioned 73 times in the text, indeed a record, we do not know how many of the more than 70 people present spoke. Policymakers supported a significant reduction in the balance sheet given its “high level of Federal Reserve securities holdings.”  No indication was given for the timing or size of the expected reduction or whether it might be a passive roll-off or active sales. And no clue was provided to the question,  will the March rate cut be 0.25% or 0.5%. 

The major economic events deciding the movement of the pair in the next week are Fed Governor Bowman Speech at Feb 21, CB Consumer Confidence Index at Feb 22, GDP quarterly report, Initial Jobless Claims, EIA Crude Oil Stocks Change at Feb 24, Core Durable Goods Orders monthly report and Michigan Consumer Sentiment at Feb 25 for US.

BTC/USD Weekly outlook:

Technical View:

Last week’s high was 2.35% lower than the previous week. Maintaining high at 44754.6 and low at 39488.8 showed a movement of 5266 pips.

In the upcoming week we expect BTC/USD to show a bearish trend. The Instrument is trading below the 100 Simple Moving Average and the MACD trades to the downside. Should 38184.7 proves to be unreliable support then the pair may fall further to 36203.9 and 32918.9 respectively whereas a solid breakout above 43450.5 will open a clear path upward to 46735.5 and then will further raise up to 48716.3. In H4 chart rounding top pattern formation favors prospects of a bearish trend. Bearish engulfing pattern constructs a bearish outlook for the pair in the upcoming week.

Preference
Sell: 40115.5 target at 35098.9 and stop loss at 43455.8

 

Alternate Scenario
Buy: 43455.8 target at 48715.3 and stop loss at 40115.5

XAU/USD Weekly Forecast (21st February 2022 – 25th February 2022)

Fundamental view:

Gold climbed up against the US dollar during the trading course of the week, with maintaining bid for 4 days of the week. The gains had a courtesy of Russia – Ukraine crisis amid Fed speaking ignored by market players. Russia deployed troops to the region, and Western nations feared an invasion. Moscow wants Ukraine to be permanently barred from joining the North Atlantic Treaty Organization  (NATO) and want to cease all military activity in Eastern Europe. The West has aligned behind Kyiv, and at some point, Russia announced it would pull back troops, although in reality, it has done the opposite.  Risk off sentiment intensified on the US’s warnings over a potential Russian incursion of Ukraine, favoring the safe haven – gold.

The FOMC meeting minutes was released on Wednesday. Inflation was mentioned 73 times in the text, indeed a record, we do not know how many of the more than 70 people present spoke. Policymakers supported a significant reduction in the balance sheet given its “high level of Federal Reserve securities holdings.”  No indication was given for the timing or size of the expected reduction or whether it might be a passive roll-off or active sales. And no clue was provided to the question,  will the March rate cut be 0.25% or 0.5%.               

The major economic events deciding the movement of the pair in the next week are Fed Governor Bowman Speech at Feb 21, CB Consumer Confidence Index at Feb 22, GDP quarterly report, Initial Jobless Claims, EIA Crude Oil Stocks Change at Feb 24, Core Durable Goods Orders monthly report and Michigan Consumer Sentiment at Feb 25 for US.

XAU/USD Weekly outlook:

Technical View:

Last week’s high was 1.95% higher than the previous week. Maintaining high at 1902.4 and low at 1844.4 showed a movement of 580 pips.

In the upcoming week we expect XAU/USD to show a bullish trend. The Instrument is trading above the 200 Simple Moving Average and the MACD trades to the upside. A solid breakout above 1918.7 may open a clean path towards 1939.6 and may take a way up to 1976.7. Should 1860.7 prove to be unreliable support, the XAUUSD may sink downwards 1823.6 and 1802.7 respectively. In H4 chart pennant pattern favors prospects of a bullish trend. Also to be noted hammer formation exerts the expectation of uptrend for the pair.

Preference
Buy: 1897.5 target at 1938.8 and stop loss at 1858.7

 

Alternate Scenario
Sell: 1858.7 target at 1807.5 and stop loss at 1897.5