The geopolitical
crisis in Eastern Europe continues as the Russian invasion continues for the
sixth consecutive day. Nobody can even anticipate the end of this war. The West
is devastating the Russian economy with financial, trade and economic
sanctions. But such sanctions do not only hold a threat for Russia, but also for
the global economy.
The freezing
of more than 60% of Russia’s central bank assets was largely unexpected and
very painful for the Russian top decision makers. But this move may push the
Russian government to default on the Russian corporate debt that is estimated to
be at $478.2 billion at the beginning of 2022. This may seem to be appropriate
collateral damage for the United States, but for some European countries or
large financial institutions, it may be critical to provoke a chain of
defaults. To cushion such a possible threat the European Central Bank (ECB) must
maintain interest rates close to zero and urgently raise its bond buying
programs. This may result in soaring inflation and such measures may resemble the action of pouring gasoline into fire. The economic
consequences may be very painful.
But all
this is far from happening at the moment. American investors are seen to be
full of optimism, taking advantage of the situation as expectations of
aggressive interest rate hikes by the Federal Reserve (Fed) during its meeting
in the middle of March are fading. Thus, fundamentally long positions in the
U.S. stock market may be justified. The S&P 500 broad market index futures
were down by 2.0% on Monday early trading but recovered by ending the day in
positive territory.
Military
actions in Ukraine are likely to continue this week. But there is a
conservative assumption that American investors have just stepped over these
geopolitical risks and are looking towards the testimony in congress by Fed chairman
Jerome Powell on Wednesday. Mr. Powell
is expected to tame current hawkish rhetoric by the Fed.
The technical
picture confirms such expectations. We may confirm that the S&P 500 index
chart formed an upside pattern with a target at 4550-4600 points. However, to
attend this rally we need to wait for the index to move down to 4240-4280
points. The price was there on Monday and may not provide another opportunity
to open long positions.
Crude
prices have met targets of the “$100
per barrel” scenario and reached $101.50-102.50 per barrel for the Brent crude
benchmark last week. The geopolitical crisis in Eastern Europe and sanctions on
Russia would further support high crude prices. The U.S. has announced new
interventions in the oil market. But prices will hardly go down significantly
since the geopolitical risks are already in place. However, the restoration of
the nuclear deal between U.S. and Iran may lower crude prices as 1.0-1.3
barrels of crude per day may return to the market.
Gold prices continue
to move above $1900 per troy ounce thanks to the geopolitical risks. However,
the period of weak gold prices has started, and may last until the middle of April.
Gold prices have a significant potential to move down to test $1840 per ounce,
and in case of a breakthrough to dive deeper to $1650-1750 per ounce. So,
closing of long position may be justified, as well as a readiness to go short .
Geopolitical fears on
the FX market led to the appreciation of the U.S. Dollar. EURUSD hit the lowest
support level of the week at 1.11300 and bounced back to 1.12200. The Greenback
is strengthening. But due to a lot of uncertainties, opening any positions
would have a significant risk behind it.
GBPUSD is on the
downside track with the lowest support level is at 1.33000. High volatility
does not provide any good entry point for the short position at the moment.