Iranian nuclear deal likely with 72 hours
At the time of writing the Ukrainian and Russian negotiators have agreed to hold the third round of talks soon and thankfully to ensure a joint provision of humanitarian corridors for evacuation civilians. The markets have once again been reacting to headline news around these issues and largely ignored the ECB, Fed Chair Powell and Bank of Canada’s Macklem who all stated they were concerned about inflation. The Fed and BoC are talking up raising rates whereas the ECB is still not.
Market Wrap
VTB Capital is a Russian investment bank. It is one of the three strategic business arms of VTB Group, along with the corporate and retail businesses. Today the London Stock Exchange’s clearing arm LCH placed VTB Capital in default as a clearing member. This is directly a result of the sanctions being imposed on Russian entities. VTB Bank commented saying their situation is stable. Today the Ukrainian delegation in charge of negotiating with Russia headed towards Belarus by helicopter while French President Macron spoke with Putin and then Zelensky by phone. One of Macron’s aides threw petrol on the fire when stating that the Russian President is aiming to seize the "whole" of Ukraine. The German economy minister said that Germany is dependent on Russian gas shortly after Russia’s Zarubzhneft pulled out of its Urals oil sale for Q2 due to a lack of buyers.
The price of oil was reacting to these headlines coming out of Russia and Ukraine and then reversed on the news that an Iranian deal could be done within the next 72 hours. Once again, the term, “nothing is agreed until everything is agreed” came soon after but it was enough to ensure the price of Brent didn’t reach back above $118 again today. The 1 pm candle dropped $8 to $108.17 and subsequent price action has been within this range. This morning I noted that buying into the test of the 50-period EMA on the H1 chart may be a good strategy today and so far, it is working out if you happened to have done that. The problem is the fundamentals will have changed if Iranian oil does come to market in the coming days as supply would potentially increase beyond demand. An Iranian official said that if the US sanctions were lifted Iran could boost its oil output by 4mln bpd from around 2.5mln bpd in about 3 months.
In terms of scheduled news out of the US, there was little to cheer. In a report released this afternoon, the Institute for Supply Management (ISM) said the services industry slowed down in February. The PMI (Purchasing Managers Index) for services fell by 3.5 points to 56.5% in January 2022. In February, the Business Activity Index dropped 4.8 percentage points to 55.1%, while the New Export Orders index decreased 5.6 percentage points to 56.1. The Employment index moved into contraction territory, losing 3.8 percentage points to land at 48.5%. And a report published by the Census Bureau said new orders for manufactured goods increased by 1.4% on a monthly basis in January.
The US Initial Jobless Claims came in slightly better than expected at 215k. Tomorrow we get the government’s monthly nonfarm payroll and earnings report.
This didn't bother the US dollar index (DXY) as it kept pushing higher due to a lack of liquidity and strong demand. This move is also adding pressure to the EURUSD which today cleared the double bottom I had highlighted and reached a previous daily high resistance level. The move could still be to the downside as the ActivTrader sentiment indicator shows an increasing number of retail traders on the platform are bullish the major cross.
The EURCAD trading idea from this morning also worked as we saw the price action turn exactly where we expected at the previous day’s low and the dynamic resistance of the 20-period EMA. The profit target may be a way off from being met and the news out of Iran may also scupper this idea but for short term trading action there was an opportunity to get more than 50 pips today, so with a RRR of 1:1 traders may be at break-even now or have at least taken some risk off the table.