Weekly Focus: Eurozone is Heading for a Disaster

New sanctions were imposed on Russia as the United States has blocked the Russia Central bank’s reserves that are used to repay sovereign debt. So, Russia’s attempt to pay more than $600 million due on sovereign bonds has been blocked since Monday. Europe is likely to introduce the same restriction soon. Russia has continuously reiterated that it would pay its foreign debt coupons from its reserves and now they are currently seized in American banks or in rubles. The only option Russia has left, according to rating agencies, is to violation the term of its international loan agreements or to default on the loans. 

This may force Russia to default on its sovereign debt at the end of April, which may create unpleasant consequences for Europe too. Investors may file a suite to claim their interest from Russia of around $20-30 billion are to be charged from Russia’s blocked central bank reserves. 

The second option suggests that Russia has to repay its debt from incoming Euros and Dollars that are not locked in reserves. In case of a default investors may demand to seize Russian overseas property in order to repay its debts.

The overall payment of $20-30 billion may seem very hefty for a country but in terms of overseas property processing it might be seen as dead weight. The following response from Russia may cause disruptions and finally block some gas and oil deliveries. Inflation in the Eurozone of 7.5% is the highest since 1981. So, this ‘exchange’ may have equal serious consequences for the European economy also.

Investors are seemingly considering such consequences as the Euro is declining against the Dollar. The Old World is suffering a massive capital flight that is migrating primarily in the United States. 

A possible economic crisis in 2022-2023, that is alluded by the inverted yields’ curve, could again be put out by switching on the money printer by the Federal Reserve (Fed). This time it may increase money supply not by 20% as it was in 2020, but by 30-40% that would flood the economy and devalue the Greenback.

With all this pieces in place, the puzzle of a possible economic downturn is starting to be shaped. S&P 500 broad market index is within the upside pattern. However, primary targets at 4600-4650 points have  already been met. Some attempts to push the index up could be made by Wednesday before the Fed has a chance to remind investors of its bold monetary tightening policy. 

The oil market ran out of time to follow the upside scenario for Brent crude prices at $160-180 per barrel. Prices are sitting at $110 per barrel and are limited by a resistance at $120 per barrel and a support at $95-105 per barrel. Technically prices are longing to the downside. However, geopolitical factors are limiting such a possibility.

Gold prices are struggling to remain at the current level. But market conditions seem to be unfavorable for the bullion by the middle of April. U.S. Treasuries yields are at their highs. Trades opened at $1950-1960 per troy ounce with the target at $1840 could be retained. 

EURUSD changed the upside pattern to the aggressive downside with the target at $1.07000-1.08000. This pattern is supported by fundamentals. High-risk sell positons opened at 1.10450 that survived recent high volatility could be kept, while new short positions could be opened at 1.10500-1.10700, which is unlikely to be reached.

GBPUSD is within the downside pattern with the target at 1.28000-1.28500. Trades opened at 1.31200-1.31400 could be partially closed as the resistance level edged up to 1.31600-1.31800. If such a rebound would take place, new positions at this level could be reopened.