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Market Brief
Today is going to be a very busy day in the markets. We are in week 3 of the Russia versus the world conflict and volatility is still very high. Because of what is happening in Ukraine the markets will react to headline news and there have been recent cases where the news flows become muddied with inconsistencies and conflicting statements. For example, the markets moved on a headline that said the UAE would urge OPEC+ to up oil production targets, but that was followed by an OPEC representative saying the UAE had not discussed such a thing and Iraq saying they could up production if required. Net-net I would say there is going to be an increase in production as OPEC needs to fill the gap left by Russian export bans. Rather than lose market share to other producers.
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Brent broke and closed below some significant market structure on the H4 chart but did not manage to close below a significant daily swing low. I have marked up a box where I am considering looking for a short position on the H4 chart to see if we can get a decent RRR, while the oil supply issue is in flux. If nothing fundamentally changes, the price of energy is going to keep going up until the world economy breaks. So, I really want to see a clear rejection somewhere between $123.8 – $129.00 per barrel.
Last night the US House of Representatives voted to rush $13.6 billion in aid to Ukraine as it battles invading Russian forces, along with $1.5 trillion to keep US government programs operating through Sept. 30 and avoid agency shutdowns this weekend. This concludes the spending needed for the fiscal year, so we do not have to worry about that every few months now. It is amazing how they can find the money when they need it, or they want it. Whether it be the defence budget or aid to Ukraine, there is very little pushback from either side of the aisle, but when it comes to funding for actual Americans like the Child Tax Credit or Build Back Better there is never enough money.
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The US dollar index had been enjoying higher highs as the flows out of the euro helped support the greenback further during its safe-haven flow. I am now waiting to see what the forex calendar news this afternoon brings and will not be making a US dollar-based trade until this afternoon. There have been a couple tests of higher timeframe resistance levels in the past week, which have so far acted as a level of resistance. The next consideration is, will the February high act as support or will they trade back inside that month’s range?
Scheduled news kicks off when London traders get back from lunch, so any moves in the forex markets this morning could be unwound. First on the deck is the ECB which is expected to keep the Deposit Rate and the Refinancing Rate unchanged. Anything other than the status quo will be market-moving for the euro. Also, market-moving for the euro will be any mention of being more hawkish or ever more dovish during the ECB President Lagarde press conference.
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The EURUSD has traded off not only the level of daily support identified a few days ago but also off the median line of a pitchfork, which originates from the 2018 high. Sometimes I think TA is a good timing tool, but that confluence was rock solid. Anything could happen to the euro today, so I am just waiting to see what the market decides and then see if the picture becomes clearer. The only downside targets for me are monthly lows starting with the 1.0635 from March 2020. If that gives up the next target could be the 1.0340 level.
Next up will be the US CPI data for February which is already being built up by US Press Secretary Jen Psaki as being a “High Headline.” Currently, CPI YoY is at 7.5% which is a level last seen during the early 1980s which came off the back of the 1979 energy crisis and Iranian Revolution. The cascade of events saw inflation at double-digit highs and the monetary policy adjustment led the world into a global recession of 1982. Unfortunately for the globe, we are not starting from a very good level due to what happened with COVID-19.
We had the liquidity event; we are now going into an era where the markets will have to deleverage.
At the same time, we receive the inflation data from the US we also get to see whether the trend in the US initial jobless claims is also declining still. Last week’s levels showed a weekly average of 230.5 which is becoming significantly lower than the peak in January.
