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Gold and USDJPY Gauge Ukraine Fears Versus Fed Rate Forecasts

Gold and USDJPY Gauge Ukraine Fears Versus Fed Rate Forecasts

John Kicklighter,
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SPDR S&P 500 ETF, Ukraine, Interest Rates, Gold, Oil and USDJPY Talking Points

  • The Trade Perspective: SPY Bearish Below 457.50; USDCAD Range between 1.28 and 1.2650; Crude Oil Bullish Above 90
  • The tension at Ukraine’s border has not improved materially, but general search interest for the threat ebbed far enough to subduct ‘inflation’ this past session
  • Gold and USDJPY remain my preferred scales to determine whether risk trends (whether Ukraine charged or not) or monetary policy is the most productive driver

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Inflation > Ukraine - But Does It Stay That Way?

Interest rate expectations and inflation concerns managed to overpower the focus over Ukraine’s safety for at least a brief period this past session. It isn’t difficult to connect the dots on why the more traditional fundamental theme managed to wrest our attention away from the geopolitical standoff in Eastern Europe. Event risk offered up a broad – and in a few ways, unexpected – insight into global price pressures along with a few monetary policy matters that would readily translate the fundamentals into market terms soon after. For a broader overview of our speculative frame of mind heading into Thursday trade, the Ukrainian border has yet to be breached and conflicting headlines of Russian troop movements are anesthetizing our sensitivity to the threat. That can change quickly of course should some definite news cross the wires. In the meantime, post-FOMC minutes rate forecasting is an active matter that can fuel carry over with some key Fed speeches on tap in the New York session.

Chart of SPY S&P 500 ETF with 100, 200-Day SMAs and Volume (Daily)

Chart Created on Tradingview Platform

The indecision in speculative markets is well represented in the technical picture of the SPY S&P 500 ETF. The benchmark product for US speculators was little changed (+0.1 percent) day over day, but the session’s modestly wider range engulfed the previous day’s exceptionally narrow active trading range. W are in the middle of the past month’s range, so there doesn’t look to be a heavy price biased to skew event-risk scenarios. Nevertheless, I consider the potential severity of a meaningful ‘risk aversion’ move to be far greater than an equivalent ‘risk on’ development. Fears around out of control inflation or a dramatic change in interest rates can bubble to the surface, but we have been interpreting these tea leaves for months now. The situation around Ukraine still represents the most skewed market impact threat of the known dangers, so trader would do well to remain very diligent of the headlines. While search interest in the matter has faded in financial circles recently (see below), uncertainty can still act as an active anchor against bullish or bearish trends fostered through other means.

Chart of Google Search Trends Worldwide in Investing (Daily)

Chart from

Crude’s Channel Finds a Bullish Bedfellow in Ukraine Risks, Gold Readily Trades Bullish Catalysts

Figuring out what fundamental line carries the most weight in the broader financial system goes a long way to determining what trade opportunities are genuinely appealing. There are a few assets that have strong ties into general risk trends, financial stability, monetary policy and other themes. Crude oil remains a market that I find interesting for the boost to bullish views that can come through inflation fears, Ukraine-related supply troubles and simple buoyant economic growth forecasts. We saw the commodity slip this past session back to channel floor as another day passed without Russia stepping over the Ukrainian border. A stalemate doesn’t make a strong case for a breakdown; but we could trade a military escalation or robust growth update readily to argue a bullish channel swing. Keep tabs on the 20-day moving average for now.

Crude Oil Futures with 20-Day Moving Average (8-Hour)

Chart Created on Tradingview Platform

Gold has been the other commodity that I have referred to heavily this week. You’ll notice the precious metal held former support as new resistance around 1,850 and go on to a 0.9 percent rally this past session. While that may seem to contradict moderation interest around the need for an extreme safe haven, the subsequent news that inflation continued to increase in the United States, United Kingdom and Canada this past session worked to erode traditional fiat currencies – like the US Dollar that is typically used to price the commodity. As inflation continues to build while central banks like the Fed fall behind the extreme curve, gold looks more appealing. If price pressures peak and the central banks continue forward with normalization, the trend is more likely to reverse.

Chart of Gold Futures Overlaid with 50-Day Moving Average and Volume (Daily)

Chart Created on Tradingview Platform

Rate Forecasting and its Options

Speaking to the ‘other’ major fundamental theme at play this week, interest rate forecasts didn’t receive the same level of uplift from the mandate that would urge tightening. The top event risk around developed world rate forecasts this past session was the FOMC minutes. In the detailed transcript, the broad support for a March rate hike was evident – but there was no tangible support for a 50 basis point movement. And, while the report made mention of dealer and market participant surveys reflecting expectations for an expedited quantitative tightening timeline, policy officials themselves did not throw support behind the move. In fact, market speculation showed that expectations of a 50bp move next month dropped below 50 percent while the full course of 2022 tightening edged back approximately 5 basis points to 150 basis points (5 full, standard rate hikes). Ahead, I’ll watching for an inflation signal from Walmart’s earnings as well as commentary from perpetual Fed hawks James Bullard and Loretta Mester.

Chart of Major Economic Event Risk

Table Made by John Kicklighter

While everyone may be looking for major breakouts and trend development, that is not the norm in these markets. There is certainly amplified volatility, but there isn’t much in the way of consistency to be found as we try to sort out the next unpriced fundamental sea change. It is likely that monetary policy and general risk trends will be vying for that top spot, and USDJPY remains one of my preferred vehicles for measuring the push and pull. A bullish resolution to the quickly narrowing range from 116.25 and 115.00, but I would prefer a bearish break as the likely fundamental motivators are more likely to catalyze.

Chart of the USDJPY with 50, 100 and 200-Day Moving Average (Daily)

Chart Created on Tradingview Platform

In the spirit of a market that is more conducive to congestion than trend, USDCAD’s ongoing range swings looks appropriate. This past session offered up not only the Dollar disappointment to the FOMC’s ‘mere’ confirmation of hawkish forecasts, but the Canadian currency received its own significant inflation upgrade with CPI accelerating to a 5.1 percent clip. That said, the boost was not dramatic enough to upgrade rate forecasts through 2-year yields or swaps. An eventual break from this tight 1.2800 to 1.2650 range looks inevitable, but stability for now registers as further range opportunity.

Chart of the USDCAD Overlaid with 14-Day Historical Range as Percentage of Spot (Daily)

Chart Created on Tradingview Platform

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