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Market volatility increasing as EU confirms Russian sanctions

It is still all about Russia/NATO/Europe and the USA. The UN doesn’t see much hope for dialogue but has called on all sides to calm down for the sake of the Ukrainian and Russian people caught in the middle. The Russian Rouble is on a downward spiral now, so keeping oil high is a priority for them. With 80% of Russian troops ready to go into Ukraine things are beginning to look like a war rather than just sanctions.

Market Wrap

The European Union formally adopted the latest sanctions package against Russia this morning, and the measures are now in effect. They come in response to Moscow's recognition of the self-proclaimed Donetsk and Lugansk People's Republics as independent. These sanctions, which target among others Russian Defense Minister Sergey Shoygu, were announced but critics are still saying that neither the EU, US nor UK sanctions go far enough.

Bruno Le Maire, finance minister of France, noted that the EU is expected to discuss a broader set of sanctions against Russia in case of further invasion of Ukraine. Boris Johnson has gone from saying that from the “first toe cap” of a Russian soldier entering Ukraine, he would unleash severe sanctions, as did President Biden who used the phrases “the mother of all sanctions”, to just targeting a few Oligarchs and Banks, with the promise of more in reserve should things escalate.

The US stock markets started the session in the green but started dropping as the session went on. Currently, the Nasdaq is firmly in the red, with the S&P500 and Dow Jones Industrial Average slightly higher than their opening price. The UK FTSE100 has stayed higher closing at 0.61% for the day.

Investors continue to weigh the impact of the economic crisis despite some optimism. There is still a possibility Biden will meet with Russian President Vladimir Putin. The Volatility Index (VIX) is certainly rising and as it trades towards the 30 level, traders need to be sure to widen their stops and reduce their position sizing. Liquidity dries up during periods of uncertainty so gaps, stop runs and possibly market daily limits will be run at some point.

As fresh worries over Ukraine's crisis arose, WTI crude futures were trading around $93.50 per barrel, reversing dramatically from their daily lows of $90.70. More sanctions against Russia were announced while Ukraine declared a state of emergency, in the latest sign that tensions are not yet over and that a diplomatic solution seems less likely. The fear is that there will be supply disruptions. However, for technical analysts and traders on the Brent contract, the deep retracement to the 78.6% Fibonacci retracement and $95.75 level was a great place to add a short with a stop loss above the highs.

The US dollar index is set to benefit from the euro weakness and there is a chance that the recent drop down to the $95.20 level was also a test of a deep retracement. If so, I am now looking to see if there is a reaction to the $96.50 or $97.00 levels or if the market punches higher.

It’s not all plain sailing for the greenback, the commodity pairs are doing very well on the back of what is happening in the energy markets and due to the RBNZ rate hike. The pound is not doing so well following the Bank of England MPC member Tenreyro’s testimony.

I had gold on alert today as the hourly closed below a swing low and was possibly setting up for a move lower. If the daily were to break above yesterday’s high, I would bin that short idea for a while longer. However, a consecutive drop below today’s low either tomorrow or Friday would be a bearish shift.


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