Last Friday geopolitical issues merged with other factors that direct markets, such as inflation and monetary policy, forming a strict and rigorous sequence of market events. If Russia invades Ukraine from February 16 to February 20, as the White House Administration expects, Brent crude prices may briefly jump above $100 per barrel, U.S. consumer prices may rise above 7.5% - which was lastly recorded in January - and extremely harsh actions may be made by the Federal Reserve (Fed) in March-July 2022.
The logic is very simple, and we saw it working last Friday and on Monday when news about the rising possibility of military contact on the Russian-Ukrainian border lifted crude prices and dropped U.S. Stock indices.
It is hard to predict how geopolitical tension between Russia and Ukraine will evolve as both sides are calmly waving rhetoric while also increasing military presence near the border. Russia claimed that it is pulling back some of its troops that attended military exercises in Southern Belarus near Ukrainian border, but other military drills continue near the Ukraine bordering regions. U.S. White House Administration insisted that the risk of Russia’s military invasion of Ukraine starting February 16 through February 20 is at the maximum level.
Such a situation is not the case when markets are sensitive to macroeconomic data or corporate earnings reports. The data that will be released this week, such as, January PPI indexes in the United States, retail sales and others could only really affect the market next week after invasion risks could be tamed. Technically, the U.S. stock market is very vulnerable after a 2% sell-off last Friday reversed the S&P 500index to the downside with the target at 4150-4200 points by the end of this week.
All three major stock indices in the United States dropped below their 200-days moving averages. That means it could be interesting to consider some sell positions with the order price at the resistance of 4430-4450 points where S&P 500 futures are now located.
The oil market is on a solid path for the scenario “Brent crude prices at $100”. Last Friday after the White House announced the predicted date of the Russian invasion of Ukraine, Brent crude prices jumped to $96.70 but gradually scaled back to $93.50-94.50 per barrel. This could be a jump start for the $100.00 level in case the Russian-Ukrainian conflict continues to escalate.
Gold prices are directed by geopolitics as this asset is considered to be a geopolitical hedge. Gold prices broke through the key resistance level at $1840 per ounce and are on their way to $1910-1930. For the moment bullion prices are above $1850 per ounce. Technically, they are more on the upside, at least by the end of February. But prices may drop significantly after that.
EURUSD moved to the downside with the targets at 1.10500-1.11500. The resistance of the week is located at 1.13200-1.13400, where the pair is currently located. Sell positions are not very interesting at the moment but could stir interest at 1.14100-1.14300 with the target at 1.13200-1.13400.
GBPUSD is still on the upward trend with the targets at 1.37000-1.38000. However, traders should be aware of a possible downside correction in the coming two to three days, and be prepared for a possible further downslide. Any sell positions here should be considered at the level of 1.36000-1.36200 with the first target at 1.34800-1.35200. After this target is reached it is better to reconsider current conditions or close sell operations.