Markets rally as geopolitics turns more positive

European stocks markets and US futures are in relatively buoyant mood while oil prices fell over 2% on more hopeful signs of a peaceful end to the Ukrainian crisis. Russia is supposedly returning some of their troops to their bases after military exercises were completed, signalling a de-escalation of the military build-up on Ukraine’s eastern border.

This ever-changing news came shortly before the new German Chancellor was due to meet President Putin in Moscow in the latest in a series of diplomatic efforts by western leaders. European stocks have jumped over 1.5%, a sharp reversal from Monday’s fall, while US stock futures have rallied 1.4% at the time of writing.

Yesterday, the S&P500 pushed off the Fib level (23.6%) of this year’s high to low move at 4370. But prices remain below the 200-day simple moving average and the next Fib level (38.2%) at 4453/4456. Any more concrete assurances from the main man in the Kremlin would see more buyers potentially enter the market, with targets above including the previous recent highs just below 4600, which includes the 100-day simple moving average.

Dollar down as safe haven bid eases

The greenback started the week on a solid footing on the back of risk aversion and the rising speculation on either an intra-meeting interest rate hike or a 50-basis point move at the Fed’s march meeting. There is still elevated uncertainty over the Ukraine flare-up but certainly noises out of Moscow have been more encouraging which has seen more risk taking today.

Interestingly, USD/JPY has been supported in recent sessions around 115 which signals a clear indication that the market has been far from pricing in a full-blown invasion of Ukraine. The mixed price action has seen investors weigh higher US Treasury yields against safe haven yen demand. If the latter evaporates, we might see the bullish momentum continue in this pair as US 10-year yields push beyond 2%. Buyers will target this year’s top at 116.35 in this scenario.

Overbought gold retraces from new top

Recent safe haven buying saw gold hit eight-month highs earlier this morning at $1879. Several other factors have also encouraged buying of the precious metal lately. Rampant inflation with oil nearing $100 while at the same time hurting global growth and possibly reducing the number of future rate hikes, has no doubt helped.

But the potential Russian troop withdrawal has seen sellers emerge which comes right near the November high at $1877 - who says technical analysis doesn’t work! Prices have also been overbought on the daily RSI which went close to 70. Strong support around previous highs at $1834 will be the focus for any extended selling.

Stocks Dollar Yen S&P500 Russia Geopolitics