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Dollar Cuts a Narrow Range While Nasdaq 100 Hits 8-Month Low as Russia Invades Ukraine

Dollar Cuts a Narrow Range While Nasdaq 100 Hits 8-Month Low as Russia Invades Ukraine

John Kicklighter,
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Ukraine, Russia, Bitcoin, SPDR S&P 500 ETF and EURJPY Talking Points

  • The Trade Perspective: SPY Bearish Below 426; USDJPY Short Below 114; AUDNZD Bearish Below 1.0700
  • A focus on geopolitical risk around Ukraine intensified this past after Russian forces moved over the border
  • Despite the escalation in global risks to economic and financial – much less societal – stability; crude oil cut down its rally, the Dollar was remarkably stoic and 10-year yields actually rose
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The Ukrainian Situation Deteriorates and Traders Are Paying Attention

If you are a macro trader and your attention has been pulled by traditional fundamental matters such as interest rate expectations or growth forecasts, this past session should have served as a reminder as to what is really directing sentiment at present. Yet, that doesn’t make interpreting the market plays any easier. The situation in Ukraine further deteriorated as Russian forces moved into rebel-held areas of the country, setting off a subsequent response from the West. Russia’s Federation Council voted unanimously to allow the President to move forces outside of the country – indicating they are treating the actions as liberation of sympathetic breakaway regions rather than an annexing. US and European leaders responded by swiftly enacting sanctions that they had ready to go in the event of such an outcome. President Joe Biden announced a list of sanctions aimed at curbing Russia’s economy and key players from accessing capital markets in the West. This is calculus that Russian President Vladimir Putin has no doubt thought through and pushed through regardless. It is therefore an important consideration for any macro trader that we averted a meltdown this past session despite the explicit issues at hand.

Chart of Google Search Trends Worldwide in Investing (Daily)

Chart from

There have been a number of unusual market responses to the progress of geopolitics these past 48 hours, but none were more remarkable for me than the steady bearing of crude oil this past session. There was an extraordinary volatility to the commodity with a more than $6 daily range that would ultimately register large ‘wicks’ considering that the close was very close to the open. During Tuesday’s active trading session, there was an aggressive rally, but the intraday reversal would ultimately leave us with one of the biggest upper wicks since the pandemic. While there are various measures worthy of our attention through this episode (such as traditional risk and haven assets as well as USDRUB), this perhaps one of the most exposed markets to the fundamental pressure. To see the lack of bullish follow through as forces move into Ukraine and sanctions are moved forward, it is a sign of some significant market tolerance. Lack of further climb aside though, I don’t believe a sudden relief collapse for inflation and ‘risk-on’ purposes is likely given these conditions.

Chart of Crude Oil with 20-Day Moving Average (Daily)

Chart Created on Tradingview Platform

The ‘Risk’ Side of Things

While there is reticence to catalyze the situation in Ukraine into a full-tilt financial unwind, there is still some measure of risk aversion to be assessed in market. For the saturated ‘risk-on’ side of the market, the US indices proved the most willing to cut through the justifications. The S&P 500 would manage to extend its fourth consecutive slide through the technical ‘correction’ milestone – that is a 10 percent reversal from record highs. We only briefly triggered that technical bearish cue a single day in January on the index and ETF, but it very clearly did not last. We are more meaningfully below the threshold now, but there remains a ‘neckline’ on a much larger reversal pattern with a trigger point roughly around 425 for the SPDR ETF. I’ll be watching. Meanwhile, the Dow Jones Industrial Average is standing at serious range support stretching back almost a full year at 33, 25o while the Nasdaq 100 is already pushing 8 month lows.

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

Chart Created on Tradingview Platform

With such pressure on the ‘risk’ assets, it would be reasonable to expect safe havens to be well bid. However, this category of the market was very notably lacking in the lift department. From gold’s retreat from a 13-month high double top just shy of 1920 to the pullback in US Treasuries (a haven of last resort moving inversely to 10-year yield), there was an actual firming in safety products. I think this nervous anxiety on the safe haven front rather than a clear signal of speculative demand. That said, I will be watching these various product and maintain a particularly weary eye on the DXY Dollar Index. The Greenback is considered its own safe haven, but it is really a conduit for Treasury demand globally in the event of financial storms. That said, the range on the trade-weighted index lately has been extremely narrow. That suggests a break is owed, but what will motivate the technical clearance?

Chart of US Dollar with 100-Day Moving Average and 7-Day Historical Range (Daily)

Chart Created on Tradingview Platform

‘Other’ Fundamental Matters to Contemplate

While my priority in fundamental assessment remains on Russia’s invasion of Ukraine, it is clearly not the only matter poking and producing financial markets to meaningful movement. An interesting caveat to market movement this past session was that rise in 10-year Treasury yields. At the shorter end of the curve (2-year) we actually saw rate forecasts recharge back to an aggressive 2022 forecast. Fed Fund futures are again pricing in six full rate hikes through year’s end (over 150 basis points), but it is still the case that this corner of the market is pricing in a more than 30 percent chance that the FOMC will hike by 50 bp on March 16th. That would be aggressive. However, as I pointed out previously, should risk appetite continue to build; a more aggressive Fed to respond to inflation will result with a check on speculative ambitions. Should markets retreat, a looser Fed could help ease the pain – but the risk for breaking the checkpoints is certainly to the downside.

Chart of the Major Central Bank Benchmark Rates (Monthly)

Chart Created by John Kicklighter with Data from Central Banks

With a focus on inflation and monetary policy, this morning’s RBNZ rate decision offered very interesting insight to intent and market potential. The New Zealand central bank hiked in line with expectations (25 bp up to 1.00 percent), which offers a significant speculative premium to most majors. On the other hand, if risk continues to flag, the tepid yield differential offered by the Kiwi crosses will not draw a bullish interest. I think this fundamental check will be playing a role going forward; so pairs like NZDUSD, NZDJPY and NZDCHF where there is a safe haven angle will represent interesting crosses dealing with fundamental cross winds. Alternatively, a pair like AUDNZD really registers yield forecast to yield forecast with little external consideration like risk trends. I like this cross’s reversal from large wedge reversal which puts technicals and fundamentals into harmony.

Chart of AUDNZD with 50 and 200-Day Moving Average

Chart Created on Tradingview Platform

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