Gold prices fall sharply as Russia-Ukraine tensions ease

30 March 2022, 02:33

Market Focus

US stock advanced on Tuesday amid upbeat market sentiment, rising for the fourth day as renewed hopes for a diplomatic solution between Russia and Ukraine supported investors’ risk appetites. Ukraine has proposed that it will agree to neutral status, including not hosting foreign military bases in its territory if the new security guarantee system works out. The positive news has de-escalated the conflict and lifted the expectations that an agreement to a cease-fire will be reached. On top of that, Russia also withdrew their troops and cut back military activity near the capital Kyiv, which indicated a ceasefire between the nations going forward.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average both rose on Tuesday amid easing Russia-Ukraine jitters and an optimistic market mood. S&P 500 was up 1.2% while the Dow Jones Industrial Average also advanced with a 1.0% gain for the day. Ten out of eleven sectors stayed in positive territory as the real estate and information technology sectors are the best performing among all groups, rising 2.85% and 2.06%, respectively. The Nasdaq 100 rose the most with a 1.7% gain on Tuesday and the MSCI World index climbed 1.6%. The main loser was the energy sector, which lost 0.44% despite rising crude oil prices.

Main Pairs Movement

The US dollar edged lower on Tuesday, staying in negative territory amid a risk-on market mood and retreating US 10-year Treasury yield. The DXY index dropped to a daily low below the 98.10 level in the early American session, then rebounded back moderately to recover some of its daily losses. The prospects for scaling back the war in Ukraine has underpinned the demand for risk-perceived assets and dragged the safe-haven greenback lower. But the recent hawkish Fed might limit the downside for the greenback.

GBP/USD advanced 0.01% on Tuesday and gave up all its daily gains, as the greenback recovered momentum in the last hours. Cable touched a daily top above the 1.3150 mark in the late European session, then retreated towards the 1.3060 area. The cautious tone that warned about economic uncertainty from Bank of England Governor Bailey also weighed on Cable. Meanwhile, EUR/USD climbed to a daily top above the 1.113 level and gained 0.94% for the day, as positive news regarding the Russia-Ukraine war and peace talks pushed the pair higher.

Gold declined and touched a daily low under $1892 in the late European session. The recent weakness of the precious metal was mainly due to the progress in the Russia-Ukraine peace talks. Meanwhile, WTI oil advanced 1.61% for the day, witnessing two-way price action following the headline of Russia saying it will reduce military activity around the cities of Kyiv and Chernihiv.

Technical Analysis

GBPUSD (4-Hour Chart)

Cable staged a tremendous rebound after peace talks between Ukraine and Russia made significant strides. After the fourth peace talk between the Ukrainian and Russian delegations, the two countries have finally provided possible signs towards the end of the war. Ukraine has signalled that the country would consider Russia’s “neutral country” offering and Russia would not bar Ukraine from joining NATO. Market participants interpreted the positive signs as a large shift in risk sentiment and rotated out of safe havens such as the dollar and gold.

On the technical side, our previously estimated support level of 1.3131 has changed polarity to become a near term resistance for Cable. RSI for Cable sits at 43.33 as of writing. On the four-hour chart, Cable is trading above its 50-day SMA but below its 100 and 200-day SMAs.

Resistance:  1.3282

Support: 1.3131, 1.3018

EURUSD (4-Hour Chart)

With constructive results coming out of the latest Ukraine-Russia peace talks, the euro surged. Representatives from both countries have announced significant strides towards finally ending the war in Eastern Europe. With the ECB ending its PEPP by the end of March, the end of the Ukraine-Russian war would be a significant relief for the central bankers. The economic outlook for the European Union, however, remains a concern as growth for the region seems to have slowed while the ECB remains dovish on its monetary policy.

On the technical side, EURUSD retraced after reaching our previously estimated resistance level at 1.1127. RSI for EURUSD sits at 49.78 as of writing. On the four-hour chart, EURUSD is currently trading above its 50 and 100-day SMAs but below its 200-day SMA.

Resistance: 1.1127

Support: 1.0985, 1.0845

XAUUSD (4-Hour Chart)

Gold saw a sharp drop as positive news broke out of peace talks between Ukraine and Russia. The tremendous shift in risk sentiment saw market participants rotating out of safe-haven assets such as gold and the greenback. However, gold saw a strong rebound after falling to as low as $1890 per ounce during the American session. The positive shift in risk sentiment, perhaps, was not convincing enough for gold bulls just yet.

On the technical side, Gold fell well below our projected support level of $1918 per ounce during the day but has since climbed back to around the $1918 per ounce price region. RSI for XAUUSD sits at 41 as of writing indicating some overselling. On the four-hour chart, XAUUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1947

Support: 1918, 1886