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Week at war: Powell Supported Markets Ahead of NonFarm Payrolls

The reaction of the U.S. stock market to the Russian-Ukrainian conflict is less dramatic as military actions on Ukrainian territory seem to be less tense. Russia insists on the negotiations on its initial terms that seem more like an ultimatum rather that a compromise. This may mean that Russia’s main intention is to get the Ukrainian capital Kiev under its control.

So, we may expect that urban warfare over Kiev may intensify soon. Uncontrollable spiraling energy prices may be the last trigger that will keep the United States and the European Union from implementing sanctions on Russia’s crude and gas exports. However, crude prices rose to a critical level of $112 per barrel of Brent crude benchmark this week and they may rise further to $150-170 per barrel once this resistance level would be finally passed.

This could be the reason why the U.S. stock market has stumbled in the middle of this week. Federal Reserve’s (Fed) Chairman Jerome Powell suggests that the monetary policymakers may use geopolitical tension to justify lower than expected interest rates hike during its March meeting in order to support tumbling stocks. Investors are likely to expect a 25-basis points interest rate hike this month instead of recently suggested 50 b.p.

Such expectations have clearly supported the stock market as futures on the S&P 500 broad market index rose above 4400 points. Mr. Powell warned that Russia’s invasion of Ukraine will likely further magnify the high inflation as energy prices continue to rise. “We’re going to see upward pressure on inflation, at least for a while,” said Mr. Powell. That forced the S&P 500 index to step back to 4300 points and stabilise close to 4350 points ahead of February’s NonFarm Payrolls report on Friday.

U.S. labor market in February was reported to have a positive tune with 678,000 new jobs outside Agricultural sector and lower than expected unemployment rate at 3.8%.

The technical picture confirms such moderate expectations as the S&P 500 index remains within the upward pattern with the target at 4550-4600 points. Speculative long positions from 4240-4280 points which opened this week could be retained with mandatory stop-loss orders in place.

The oil market is tempted to rise further towards $160-170 per barrel of Brent crude benchmark. Technically, this target would be in sight after Brent crude prices pass $112 resistance. And this condition was formally met as prices jumped to $120 per barrel on Thursday. However, considering the importance of such crude prices’ upside rise, it is early to say that this catastrophic scenario is currently a reality. Brent crude prices scaled back to $112 on Friday but may continue the rally. Brent crude prices may reach $132 per barrel as a first stop in case of a breakthrough of the $120 level.

Gold prices are stuck at the $1940 per troy ounce resistance level. Geopolitical risks are pushing prices to the upper limit. However, there is little room for gold prices to rise, as this rise is curbed by the downside trend that is likely to continue throughout mid-April. Prices may test the $1840 level and may go further down in case of a breakthrough to $1750 and deeper to $1650 per troy ounce. So, it could be reasonable to consider short positions on gold with mandatory stop-loss orders.

The Greenback is demonstrating its geopolitical strength as EURUSD dropped below the crucial support level at 1.11300 and slid almost to 1.10000. The pair is still on the downside, but it is too late to sell Euros now. Some long positions, despite a negative geopolitical background, may rather be attractive to open in the middle of next week.

GBPUSD is seen more stable as the Cable remains above the crucial support level at 1.33000. However, the timing to open any positions in not the proper one now.