Back to normal?

Oil might take a beating

Uncertainty surrounding geopolitical tensions at Europe’s doorstep appeared averting early in the week. It seems the latest diplomatic efforts spearheaded by France’s Macron started to bear fruit after US and Russian presidents have principally agreed to meet. This follows increasing fears of a full Russian invasion over the weekend, reflecting western claims of an imminent attack.

The US market is closed on Monday in observance of Presidents’ Day. Speculators have already made a positive footing, though, and if the situation continues to de-escalate, we might see this turn into a series of risk-on sessions.

Oil has already reversed some of its recent gains, and it might throw back further down on the news. Susceptible to headlines around the US and Russia, any promising developments would be adverse to oil prices.

Closer to the end of the week, crude dropped to $87/bbl. Notably, volatile price action saw the commodity forming a bearish indecision candlestick after hitting a 9½ year high. If we experience the usual follow-through of the pattern, WTI could plummet towards $77/bbl. However, it is expected to first find support at $81/bbl.

Apart from potential sanctions and updates around the principal meeting, traders will be keeping a close eye on associated meetings in the EU.

SP500 at technical risk

In the US, hawkish central bank expectations will get a chance to provide substance for a more aggressive hike at the March meeting, contingent on US’s GDP, PCE, and consumer confidence data.

Despite markets expecting an upward revision in the US GDP figures, most economists will focus on the Fed’s preferred inflation indicator, PCE. YoY, PCE is expected to increase at 5.9%, only 0.1% above the previous print. The monthly estimate features a drop from 0.4% to 0.2%. If the price index comes out above expectations, markets will take this as bullish as it would somewhat ratify Fed’s aggressiveness. In sooth, if the monthly data come out at or above 0.4%, markets will most probably corroborate Fed’s hawkishness.

Technically, traders will watch out for rejection at the 50-week average as the SPX did close below the critical level last week. If the early-week rally subsides, markets could continue lower down to 4130. However, if the economic data show weakness by week’s end, an attempt to 4500 could be made again.

It still is about Omicron for the Euro

Apart from consumer confidence data in the US, the same lot is expected to be released in the EU. However, traders will probably focus on Germany’s inflation, Ifo data, and Eurozone’s PMIs.

January’s flash PMIs indicated that the European economy has started to slow down already, and prices continue to receive pressures from the trajectory of the Omicron variant. ECB’s job will undoubtedly become more burdensome if the readings show a pattern of persistence across Europe as it recently signaled a hawkish stance. If inflation comes under economists’ expectations of 5.1% on Wednesday, it will add to the pressure. However, if inflation rises, it’d add conviction into ECB’s recently adjusted path to normalization.

Last week’s indecision candlestick on Eurodollar adds a bullish bias to expectations of where the pair might be heading. The $1.1280 will probably act as a make-it-or-break-it level if the euro weakens or the dollar strengthens amidst economic releases. On the flip side, $1.14 breaking would let bulls run the exchange rates up to around $1.1460, a tad below the pair’s 200-week average. Even if the short-term is bullish, the resistance laying ahead will be very hard to defeat.

And the RBNZ hiking cycle continues…

With most of the economic calendar filled with medium-impact events, New Zealand’s rate decision seems to contrast. RBNZ will meet this week and announce its policy decision on Wednesday. Martlets expect the bank to hike another 25 basis points due to its labor market tightening faster than anticipated. This will be the third back-to-back hike fro RBNZ as it attempts to curb rising inflation and house prices.

Interest rates in New Zealand currently stand at 0.75%, while consensus is for hikes to be at 1% following the announcement.

With the event being somewhat priced in, evidently in kiwi prices, only a double hike would offer a break of the 200-week average at 0.6727. Although highly unlikely, trades would target the 0.68 round resistance next. If the RBNZ hikes once, prices could throw back below 0.67 until the next major economic event on the calendar provides more clarity. But if the bank surprises with a ‘hold,’ NZDUSD will likely descend towards 0.66 and below in the medium term.

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