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Forex Analysis – GBPUSD
The forex heatmap is suggesting more risk-off but we’re seeing the markets react positively to the news that Russia is interested in reaching an agreement with Ukraine at talks held near the Belarussian border.
Most of the world is tightening their economic sanctions on Russia as they see Putin as the aggressor, though in a recent live televised question and answer, Russian President Putin asked, “How would the world react if missiles were placed at the Canadian border?”
The Brent crude contract had jumped to touch $100 per barrel again before dropping back to $97 p/b. We’re likely to see high volatility this week as the next few days is crucial in determining the direction of both the conflict and maybe a new world order. When the words nuclear deterrent and high alert are muttered from anyone, let alone the guy invading another country things are obviously more serious than they have been since 1962.
Any disruption to supply chains has been proven to be detrimental to world economic growth, so applying sanctions to financial services, imports, and exports to and from Russia is going to be another drag on the global economy and we’re not even out of the COVID slump yet.
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The Volatility Index (VIX) is still hovering around the 30 levels, so ranges will be thoroughly tested and expanded, looking for imbalances and resting orders. Gaps like the one we see on the GBPUSD H1 chart are highly likely to get filled and in doing so, the momentum will have possibly changed trapping traders who were short below 1.33500 and forcing them to buy back at a higher price. On the Daily chart, the GBPUSD could then travel all the way back to the 1.35350 level which was the breakout price with a final push through to the 1.3650 level to sweep the resting stops that would have been placed throughout February.
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The bullish scenario may be a tad optimistic as the UK is being drawn into the Ukrainian situation more each day and especially after the Secretary of State for Foreign, Commonwealth, and Development Affairs of the United Kingdom, Liz Truss said on television she would be okay with UK citizens traveling to Ukraine to help defend the country against the Russians. This morning the UK Government announced they will take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the Central Bank of Russia, the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation, with immediate effect.
The ActivTrader sentiment indicator is showing the traders on the platform favour higher prices for the GBPUSD so we may need to see this cohort get stopped out before the move back to 1.35350 can take place. If Cable does turn bearish after filling the gap, or worse still does not have the energy to fill the gap, traders should look to last week’s low at 1.35190 for a downside target. It could be that this level gets swept first. If the UK gets dragged in deeper than the next downside support is at 1.30791.
