Sanctions by the US and its allies on Russia’s financial system have disrupted sales of crude oil, causing prices to possibly head towards new peaks

4 March 2022, 02:51

Market Focus

US equities churned lower on Thursday, led by the tech sector as markets continue to monitor the war in Ukraine. In the meantime, Fed Chair Jerome Powell has mentioned that rates are headed higher despite the uncertainty in Ukraine. The Dow Jones Industrial Average closed 0.29% lower, the S&P 500 declined 0.53%, and The Nasdaq 100 dropped 1.56% at the end of Thursday.

Western countries continue to impose sanctions against Russia along with widespread measures against its president and officials. With all of the current sanctions, Wall Street expects Russia’s GDP to contract by 35% in the second quarter of 2022, which is a drastic slowdown comparable to the financial crisis back in 1998.

Russia’s Ukraine invasion could potentially have set in motion an energy market disruption since the major oil crisis in the 1970s. The disruption is approaching as the energy market is already tightly supplied. Sanctions by the US and its allies on Russia’s financial system have disrupted sales of crude oil, causing prices to possibly head towards new peaks.

Main Pairs Movement

EURUSD rebounded a little but still hit fresh 22- month lows on Thursday, closing at 1.10659. The euro remains pressured against the US dollar after the release of the NFP report. Meanwhile, the US dollar continued embracing buyers with expectations that the Fed’s impending interest rate hikes. At the same time, as the war in Ukraine continues, markets tend to favour the traditional safe-haven currency, the US dollar.

AUDUSD witnessed a rally in the first week of March, extending its gain to 0.73336 amid strong performance by its trade balance.

USDJPY did not change much amid the slightly dovish stance of Jerome Powell’s second speech. USDJPY was trading at 115.453 at the end of the day on Thursday. Further price action will depend on Friday’s US economic data.

Gold surged to $1941.29 per ounce in the late US trading session as the second round of the negotiations between Russia and Ukraine has seen any results yet.

Technical Analysis

GBPUSD (4-Hour Chart)

The British pound sank again against the dollar as Fed Chairman Jerome Powell reaffirms the hawkish stance of the Fed. In his statement, Chairman Powell reassured senators that the Fed will reduce its balance sheet and commit to interest rate hikes to rein in inflation. The second round of peace talks between Russia and Ukraine has failed to stop Russia’s advance onto Ukrainian soil. As of writing, Russian troops have entered Kherson, one of Ukraine’s key strategic ports.

On the technical side, Cable is still trading above our projected support level at 1.3311 and the pair is expected to stay above this key support level. RSI for the pair sits at 42.82. Currently, GBPUSD is trading below its 50, 100, and 200-day SMAs.

Resistance: 1.3435, 1.35212

Support: 1.331

EURUSD (4-Hour Chart)

The euro continues to sell off and has dropped to a new multi-month low. The conflict in eastern Europe continues to weigh on the shared currency. Nord Stream 2, a key project that would bring energy costs lower, announced bankruptcy amid global economic sanctions on Russia. The ECB released its latest meeting, which stated a scaling back of its accommodative monetary policy. Furthermore, the PEPP is projected to end by March. Despite the ECB’s expressed interest in tapering, the shared currency will continue to be unattractive as global central banks engage in direct interest rate adjustments.

On the technical side, EURUSD has, as projected, broken through our estimated support level at 1.11629. Further down support for the pair can be found at 1.1007. RSI for the pair has dropped to 32.2354 as of writing. EURUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1.1224, 1.12793

Support: 1.11629

XAUUSD (4-Hour Chart)

Gold traded sideways as no resolution came out of the second round of peace talks between Russia and Ukraine. The safe-haven asset remains highly in demand as the situation is still highly volatile. As of writing, Russian troops have taken over a key strategic port of Ukraine. The recent volatility of gold seems to have waned, despite escalating tensions between Russia and Ukraine.

On the technical side, a new support level has formed around 1918 for XAUUSD. On the other hand, a new resistance level at 1946 seems to have formed as well. As of writing, RSI for the precious metal sits at a neutral 54.81. XAUUSD is currently trading above its 50, 100, and 200-day SMAs.

Resistance: 1909.16, 1953.407

Support: 1920, 1900