Western allies and other major economies (US, EU, UK, Japan, and Australia) have spent the past 24 hours announcing the imposition of sanctions on Russia. There are suggestions that these sanctions could have gone further, but also this leaves room to ratchet them up further. Financial markets have reacted fairly positively to this and there has subsequently been a slight improvement in risk appetite this morning.
The RBNZ has moved to hike rates as expected. However, the discussion was on the hawkish side, with the prospect of further hikes to come. This “hawkish” hike is helping to propel the Kiwi higher this morning, whilst the Aussie is also riding the wave higher too.
Eurozone inflation is final data and is unlikely to move the EUR too much, but will still be watched for any surprise revisions.
The sentiment is looking fairly positive: Indices are rebounding, precious metals are slipping into consolidation, major forex shows a slight risk positive bias.
Treasury yields are ticking higher again: the US 10 year yield is 2 to 3 bps higher. This suggests a reversal of the safe-haven flows. However, traders will be watching this movie as shorter-dated yields (2 years) are higher and the yield curve continues to flatten (not a great sign for economic outlook) [Risk neutral]
Russian sanctions could have gone further: The sanctions imposed by the West could have been more severe and markets have reacted fairly positively. This may only be a near-term boost though as this may not be seen by Putin as a significant deterrent. Interestingly, there were no energy sanctions aside from the shelving of Nord Stream 2. [Risk positive, for now]
RBNZ with a hawkish hike: The Reserve Bank of New Zealand has increased the interest rate (OCR) by 25 basis points to 1.00%. However, the decision was finely balanced on a potential +50bps hike and the committee has suggested more tightening is needed. Also, it has increased the level where it sees the OCR reaching in June 2023 (up to 2.84% from 2.40% previously). [NZD positive]
Cryptocurrency finding support: Bitcoin is off its low of $36,350 and is rebounding alongside other risk assets this morning. Already it has broken a run of five consecutive lower daily lows.
- Eurozone final inflation (at 1000GMT). Consensus is not expecting any revision to the flash data, with headline inflation at 5.3% and core inflation at 2.3%.
MAJOR MARKETS OUTLOOK
Broad outlook: Market sentiment is improving this morning.
Forex: USD and JPY are the main underperformers. Commodity currencies are the outperformers, with NZD leading the way.
- EUR/USD has just started to build support again and is ticking back higher. The 1.1360/1.1395 resistance area lies overhead. We remain neutral as EUR is essentially still in the middle of the trading range between 1.1120/1.1495. Holding above support at 1.1280 maintains a neutral configuration.
- GBP/USD has rebounded well off yesterday’s low of 1.3538 and is looking to test resistance at 1.3645 again. It needs to break out to end a mini trading range of 1.3485/1.3645 of the past few weeks. We remain neutral but there is a hint of a more constructive technical outlook on daily and 4-hour charts.
- AUD/USD is breaking out above the near-term resistance between 0.7225/0.7250. This opens the more important 0.72780/0.7315 January resistance. Momentum is leading the way higher too. The 4-hour chart shows initial support of 0.7200/0.7230. The recovery uptrend and price support are around 0.7165.
Commodities: Hints of waning momentum and possible tops on precious metals. Oil is also beginning to look less strong on the momentum of the run higher.
- Gold has tailed off at $1914 (under the $1916 high from May/June 2021 peaks) and is beginning to hint at a potential near term reversal. Below $1886 would complete a small top and imply a retreat towards $1860. Watch the 4-hour chart for the RSI moving below 50 for confirmation. Initial resistance $1905/$1907.
- Silver is consolidating back from $24.35 this morning. There is no sign of any top formation (unlike on gold) at the moment. Watch initial support at $23.94, but it would take a break below $23.67 to open for a corrective move.
- Brent Crude oil has consolidated back from $99. For now, this is still just a pause within the run higher, but the negative divergence on daily chart RSI momentum is a warning sign. Holding under $94.75 would add to that warning, with support at $90.40 being key.
Indices: US futures are rebounding and European markets are solidly higher this morning.
- S&P 500 futures have started to recover from 4250 which is above the key support of the January low of 4212. Initial resistance is at 4358 with a two-week downtrend at 4390. For now, this is just a rebound within the selling phase, so buyers need to build a series of positive candles for a serious recovery to hold.
- DAX has rebounded and is now back into the 14,810/15,000 zone of key supply of stale bulls. This will be a crucial moment for the DAX. For now, this is just a rally within an 8-week downtrend. Reaction to this resistance will be key. Support of yesterday’s low is at 14,312, with higher lows at 14,505 and 14,677 on the hourly chart.
- FTSE 100 has rebounded well and is not back above the neckline resistance at 7485/7510. Similar moves have failed in the past two sessions, so this is an important move today. A close above 7570 would be a strong move. Support is at 7482 this morning.