Weekly market report – 21 Feb 2022

Forex

Source: Bloomberg. Click to see full size

The US dollar index edged higher against a basket of major currencies on Friday, 18 February 2022, reversing previous losses. However, it was still down for the week as a series of developments in the Ukraine-Russia situation jittered traders. The US dollar index was down by around -0.34% for the week. Currently, the US dollar index is trading at approximately $95.78. The monthly chart above shows multiple support levels at the 100 SMA and 200 SMA at $95.44 and $93.76, respectively. On the other hand, the US dollar index is trading just below the resistance level of 50 SMA at around $95.97.

How did the other pairs react?

• The EUR/USD pair ended the week with little movement, trading in the $1.1350 – $1.1360 price range. The sentiment about geopolitical tensions between Russia and Ukraine dominated financial activity. Additionally, the US Federal Reserve meeting minutes failed to provide new hints on monetary policy.
• GBP/USD, up for the third week in a row, remained resilient to the Russia-Ukraine crisis despite UK inflation rising and raising expectations of increased rate hikes by the Bank of England (BOE). On the other hand, the January Fed minutes disappointed hawks and triggered a new wave of US dollar selling.
• USD/JPY’s movement was primarily driven by Russia’s intentions in Ukraine and the news surrounding the military and diplomatic situation. On Thursday, 17 February 2022, USD/JPY closed at ¥114.91, its lowest level in 2 weeks, after unverified artillery exchange reports triggered safe-haven flows to the yen. The USD/JPY rose above ¥115.00 following an agreement for US Secretary of State Anthony Blinken to meet with Russian Foreign Minister Sergey Lavrov in Moscow next week. However, the standoff continues to have market ramifications.

This week’s focus would be on CPI data (January) for the Eurozone, the Consumer Confidence Index and Fed Monetary Policy Report for the US and the inflation report hearings in the UK by the Bank of England. Despite a relatively light data week, the central underlying theme will be geopolitical developments involving Russia and Ukraine.

Commodities

Source: Bloomberg. Click to see full size

There is a growing concern that key commodities manufactured and exported by Russian companies may be affected by tensions between Russia and Western nations over Ukraine and possible sanctions against Russia.

Last week gold reached $1,900 per ounce for the first time since 2021 only to retreat in response to the US-Russian diplomacy talks on 18 February 2022. However, this pullback could be short-lived, as “lingering and still unresolved tensions will continue to support bullion”, says RJO Futures senior market analyst Bob Haberkorn. Regardless of the slump, the gold price rose by 1.9% maintaining its uptrend for the third consecutive week.

As seen in the monthly chart above, gold is currently trading at around $1,896.76, marginally close to its 50-day and 100-day moving averages at $1,895.18 and $1,893.84, respectively, and well above its 200-day moving average at $1,877.25.

Oil prices took a hit following reports that a nuclear agreement with Iran was “closer than ever.” If a deal is reached, Iran could return about 1.3 million barrels per day (BPD) to the market following the lifting of US sanctions. This prospect pushed oil prices to their first weekly decline in 9 weeks on Friday, 18 February 2022. Although escalating tensions over the Ukraine-Russia crisis did not offer significant support, the uncertainty could potentially push prices higher. 

On Friday, 18 February 2022, the benchmark WTI Crude was trading around $91.07 a barrel, closing 4.6% lower on the week. 

Since the oil markets are currently unpredictable, there is a high probability that OPEC+ will stick to the production hike strategy of 400,000 BPD by April 2022 to maintain some normality and stable long-term conditions.

Cryptocurrencies

Source: Bloomberg. Click to see full size

Last week, Bitcoin slipped below its key psychological level of $40,000, which moved it further into bearish territory. The world’s largest cryptocurrency shed around 6% last week, trading lows of about $39,858 as the standoff between Russia and Ukraine continued to spook traders.

Technically speaking, the chart above shows Bitcoin’s current primary support at $36,450, whilst any upside potential would see its primary resistance level of $39,913 at 38.2% retracement come into action. A breach of this level would introduce $41,013 as its new primary resistance level.

The number two cryptocurrency, Ether, continued to mirror Bitcoin’s price movements with a weekly loss of almost 7%. During Friday’s morning session, Ethereum failed to uphold its major support level at $2,900 and was further hit with a wave of selling that dropped Ether to an intraday low of around $2,750.

Whilst last week’s sell-off placed most of the top 20 cryptocurrencies in the red, only Avalanche (AVAX) ended the week positively, posting an interesting 3%.

“Wall Street has gone into full de-risking mode, and Bitcoin is paying the price”, OANDA senior market analyst Edward Moya commented. “Fears over geopolitical concerns and potentially aggressive central bank tightening has cryptos across the board in free fall.”

Moreover, the rise of government scrutiny on the US cryptocurrency market poses an additional threat to long-term price movements. In a recent development, the United States FBI launched the Virtual Asset Exploitation Unit to focus on cryptocurrency-related crimes. Similarly, the Department of Justice named the first director for its recently-established National Cryptocurrency Enforcement Team.

US Indices

Source: Bloomberg

*Net change and net change % are based on the weekly closing price change from Monday to Friday.

The major US stock indices appeared to be on the verge of an overall gain at midweek, only to end up negative after declining on Thursday and Friday. Indices fell by nearly 2%, with military tensions on the Russia-Ukraine border being the driving force. These geopolitical tensions added to the market’s already high inflation and rising rate-hike expectations by the Fed. In addition, ​​the 10-year US Treasury yield climbed as high as 2.06% on Wednesday, 16 February 2022, the highest since July 2019, before falling back to around 1.93% on Friday, 18 February 2022. The factors contributing to this momentum were Russia’s and the Fed’s ambiguous signals, as well as economic reports.

According to the January economic reports, US retail sales increased from a December decline thanks to a surge in online sales and higher furniture sales, contributing to better than expected growth. Furthermore, high inflation also aided the latest monthly retail sales total, which was up by 3.8% compared to a 2.5% decline in December. On the other hand, the latest weekly total of new jobless claims surged to 248,000, the highest level in 4 weeks.

On the bright side, the Fed released minutes from the January FOMC meeting, which provided some comfort to markets since there were no major surprises or overly hawkish remarks. While the Fed was generally ready to raise rates in March, the minutes indicated that it did not favour a 0.50% rate hike or other aggressive moves. However, the committee did acknowledge that a significant reduction in the Fed’s balance sheet looked prudent. Just 2 weeks ago, the market expectations for a 0.50% rate hike at the March meeting dropped from over 90% to around 33%. 

This week, the key events to focus on would be on the Consumer Confidence Index and the Fed Monetary Policy Report (which is tentative).

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