Gold has hit 2022 high, while crude closed lower, weighed by weakness in equities

18 February 2022, 03:17

Market Focus

Wall street’s three major indexes tumbled on Thursday, with the S&P 500 posting its biggest daily percentage drop in two weeks as investors turned to defensive sectors and safe havens such as bonds and gold amid heightened geopolitical tensions between Washington and Russia over Ukraine. Over time, the situation has escalated, causing diplomatic talks to break down. Western countries believe that Russia is not only not retreating, but is preparing to invade. Russia has expelled U.S. officials from the embassy and is accusing Washington of ignoring its security demands, while U.S. President Joe Biden accused Moscow of creating drama to justify the invasion. In addition, the U.S. Secretary of Defense reported that Russian troops are approaching the Ukrainian border. At the end of the market, the Dow Jones Industrial Average fell 1.78% to 34,312.03 points, the S&P 500 index lost 2.12% to 4,380.26 and the Nasdaq Composite Index dropped 2.88% to 13,716.72 points.

Nine of the 11 sectors in the S&P 500 ended lower, with the technology sector falling the most, down 3.06%, followed by communications services and consumer discretionary, down 2.96% and 2.57%, respectively. The only winners were consumer staples and utilities, which rose 0.91% and 0.06%, respectively. The best performers on the Dow Jones Industrial Average were Walmart, which rose 4.01%. Meanwhile, Cisco Systems added 2.72% and Coca-Cola added 2.00%. Top performers on the S&P 500 were Newmont Goldcorp Corp, up 5.40%, and Sealed Air Corporation up 5.00%. In terms of the tech sector, large-cap companies all lost ground, with Apple dropping 2.13%, Tesla dropping 5.09%, Facebook down 4.08% and Nvidia down 7.56%. In addition, in the financial sector, large banks including JPMorgan Chase, Morgan Stanley and Bank of America have lost ground as risk aversion pushes bond yields lower. Goldman Sachs and Wells Fargo fell even after posting their upbeat outlooks.

Main Pairs Movement

Tensions between Russia and Ukraine continued to dominate headlines and financial markets, spurring demand for safe-haven assets even as speculative interest moved away from the dollar. Major currency pairs held on to familiar levels earlier on Thursday after the two countries accused each other of being responsible for shelling in the Donbas region. Finally, the DXY only gained 0.13% as the US 10-year yield dropped 3.28%, while gold gained 1.53% to break above the 1,900 level for a fresh 2022 high.

The currencies against the greenback held on to familiar levels against the dollar, despite big volatility on the day following news of Ukraine throwing grenades into the Luhansk region. EUR/USD remains stuck at around 1.1350 and stayed in the consolidated range. Sterling sees better performance than the euro and continued to move northwards, breaking the 1.35 level and closing at 1.36155. The Swiss franc and yen hit fresh weekly highs against their U.S. counterparts on safe-haven demand, while commodity-linked currencies remained near opening levels.

Crude oil prices were lower, weighed down by weakness in equities. At the end of the market, the WTI closed at $91.65 a barrel and Brent at $92.91 a barrel.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair edged lower on Thursday, seeing two-way price action amid the geopolitical headlines about the rising risk of a war between Russia and Ukraine. The pair was trading flat at the start of the day and dropped to a daily low below 1.1330 level in the mid-Asian session, now has bounced back to erase some daily losses. The pair is now trading at 1.1359, posting a 0.11% loss on a daily basis. EUR/USD stayed in the negative territory amid risk-off market mood, as the news during the Asian session reported that Ukraine fired mortar shells and grenades on Luhansk People’s Republic (LPR) locations. But Ukraine denied the accusations and blamed pro-Russia separatist forces for the shelling. For now, investors will remain their attention on the geopolitical conflict, which might keep adding pressure on EUR/USD pair.

For the technical aspect, RSI is at 49 as of writing, suggesting that there is no obvious direction for the pair now. As for the Bollinger Bands, the price is dropping towards the moving average, which indicates that the downside traction should persist. In conclusion, we think the market will be slightly bearish as long as the 1.1396 resistance line holds. Bears may take control if the pair breaks below the 1.1284 support level.

Resistance: 1.1396, 1.1465

Support: 1.1284, 1.1196, 1.1132

GBPUSD (4-Hour Chart)

GBP/USD advanced on Thursday, continuing to rebound from a two-week low below the 1.3500 mark amid the emergence of fresh US dollar selling. The pair was trading higher to near the 1.3640 mark after touching a daily low during the Asian session, now flirting with the 1.3610-1.362 area. At the time of writing, Cable stays in positive territory with a 0.31% gain for the day, remaining its upside traction. The retreating US bond yields undermined the US dollar and acted as a tailwind for the cable, as investors digest contradicting geopolitical headlines between Russia and Ukraine. US President Biden also said earlier that Russia attack on Ukraine is possible in the next few days. For the British pound, the rising expectations for additional interest rate hikes this year by the Bank of England lend support to the nation’s currency.

On the technical front, the RSI indicator is at 66, suggesting that upside is more favoured as the RSI stayed above the mid-line. As for the Bollinger Bands, the price is now moving alongside the upper band, indicating a continuation of the bullish trend. In conclusion, we think the market will be bullish as the pair already broke above the previous resistance at 1.3612, if the pair could preserve consistent strength and starts using that level as support, short-term gains could be expected.

Resistance: 1.3612, 1.3680, 1.3739

Support: 1.3513, 1.3456, 1.3372

USDCAD (4-Hour Chart)

As the tensions between Russia and Ukraine escalated, USD/CAD witnessed some fresh selling and failed to capitalise on its modest intraday gains. The pair surged to a daily high above the 1.2730 level during the Asian session, but then dropped towards the 1.2700 mark and surrendered most of its intraday’s gains. USD/CAD is trading at 1.2697 at the time of writing, rising 0.02% on a daily basis. Despite the Russia-Ukraine conflict continuing to intensify, the market mood has slightly recovered as the latest satellite images showed that Russia has pulled back some equipment from the Ukraine border. However, surging crude oil prices keep supporting the commodity-linked loonie and acting as a headwind for USD/CAD, as reports of firing grenades and mortars in a conflicted area in East Ukraine had pushed WTI back above $93.00.

On the technical front, the RSI is at 44 figures as of writing, suggesting bear movement ahead. As for the Bollinger Bands, the price is now dropping towards the lower band, which showed that downside traction could be expected for the pair. In conclusion, we think the market will be slightly bearish as the pair might re-test the 1.2665 support. If Russia does invade Ukraine in the coming days like what US President Joe Biden is worried about, oil prices would likely climb higher towards $100 per barrel.

Resistance: 1.2778, 1.2843

Support: 1.2665, 1.2575, 1.2461