Choppy markets continue to the beat of geopolitics

It’s been another 24-hours of whipsaw price action in financial markets with US stocks zig-zagging again on headlines from the Ukraine-Russian frontline. Shelling from both sides in either tit-for-tat hits or simply dangerous war gaming made investors run for the cover of safe havens yesterday, as gold notably hit $1900. But talks of a diplomatic solution and a meeting between the US and Russia late next week have seen US futures turn positive.

Geopolitics is taking centre stage, and rightly so, but the moves in markets are random and volatile.

Commodity and risk sensitive currencies are battling with safe havens like the yen and CHF and we may not know the eventual winner for some time. Much hangs on the words of Kremlin, while the US and the West demand proof of troop withdrawal, while warning that an invasion is “imminent”.

AUD top of the major weekly chart

Perhaps surprisingly, the aussie is the top performing major this week as the currency benefits from slight improvements to risk sentiment. Crucially, AUD has also not been exposed to the fall in oil prices as say CAD and to the Ukraine crisis like European currencies. The domestic jobs data told us that the current low unemployment rate is normally at a level to pressure the RBA into being more hawkish. But next week’s wage growth is more important in this regard. 

Of course, risk sentiment is the main driver, and also the large, short positioning still evident in AUD.

With regard to AUD/USD, after dropping to lows below 0.70 in late January, prices have advanced above the 50-day simple moving average. Overhead resistance lies at the 100-day simple moving average at 0.72442 and then the midpoint of the October-January move at 0.72616, with bulls eyeing up the January pivot high at 0.73143. Risk-off sees 0.71 and the 0.70 zone as support.

 

GBP looking to move higher on rate hikes

This week’s UK data deluge has reinforced expectations of several more rate hikes in the coming months. Inflation came in a tick stronger than expected at 5.5% and core at 4.4%. Along with the better labour market data, bets on a 50bp hike are currently around 50% with six hikes priced by November taking the rate to 2%.

We note that the BoE hasn’t raised rates by more than 25bps since becoming fully independent in 1997, though it has been three decades since UK inflation was this high.

Cable has pushed to the highs of the recent range above 1.36. Strong support lies at 1.35 with the 50-day and 100-day simple moving averages converging around this level, as well as the downward trendline from the June highs. Bullish momentum is picking up so watch for resistance around 1.3640 and then the 200-day SMA at 1.36887.

 

Ukraine crisis Volatility S&P 500 Gold GBPUSD Pound Sterling cable Aussie AUDUSD risk sentiment inflation Bank of England BoE rate hike