Weekly Focus: Russia and Ukraine are One Step Away from War

Investors only have one story on their radar, and that is the Ukraine crisis. On February 21 Russia’s President Vladimir Putin recognised the independence of self-declared Lugansk and Donetsk regions. Russia’s parliament will formally stamp that decision on Tuesday securing separatist-held territories as independent entities with the help of Russian troops that were sent to those territories by Putin.

Now whether Russian troops are deployed to these territories or whether they are there already is not so important. What is important is that this scenario can no longer be reversed. So, new “devastating” sanctions for Russia are inevitable.

The severity of market destabilisation is hard to predict. Technically, the S&P 500 broad market index may drop another 3.5-4.5% from the current 4270 points to 4100-4150 points. But there is no guarantee the decline would stop there, as investors have more than enough fundamental reasons outside geopolitics to dive deeper.

In this regard short positions for the S&P 500 index, they are to be held at the target of 4100-4150 points, where they will partially be closed. Then the situation should be once again reassessed. No other reasons to reverse the stock market to the upside are seen as all three U.S. stock market benchmark indexes are below their 200-days average with the new strong reason to decline.

The crude market is on its way towards the scenario of Brent crude prices hitting “$100 per barrel.”  On Tuesday Brent crude prices hit 2014 highs at $96.00-96.50 per barrel. The combination of Russian troops in Ukraine and devastating sanctions against Russia may easily throw crude prices above $100. The key resistance level is located within the $95.50-96.50 zone per Brent barrel. The next resistance level is located at $101.50-102.50.

Gold prices are benefiting from geopolitical tension on the Russian-Ukrainian border. Prices reached the lower margin of the target zone at $1910-1930 per troy ounce. We may expect gold prices to go further up to $1930 per ounce as the war unwinds. However, it is important to keep in mind that gold prices are likely to decline in March, so it may be better to close long gold positions by the end of February.

EURUSD is on the downside track with the target at 1.10500-1.11500. The pair sits at the midline support at 1.13200-1.13400m but may go deeper towards 1.12300-1.12500 over the coming days. So, some short positions from 1.13200-1.13400 with a target at 1.12500 could be justified.

GBPUSD is still on the upside track with the target at 1.37000-1.38000 but the overall market situation points toward the upside and we may expect the Cable to reverse to the downside this week. There is no reverse point at the moment, but if the pair jumps to 1.36500-1.37000 it could be an attractive point to open sell positions with the first target at 1.35300-1.35500.