If you watch the markets long enough you get used to working out what the current hot topic is. This week was US CPI but also the movements of Western leaders going to see the Russian President in person. The timeline for when the Russian incursion or even full-blown invasion to occur is at the end of the Winter Olympics. Fingers crossed the heads of state fix the problems before then. Until they do I expect oil to keep rising in price and that could trigger an emergency rate hike by the Fed.
Market Wrap
According to a preliminary report by the University of Michigan consumer confidence declined in February compared to the previous month. Consumer sentiment dropped 8.2% on a monthly basis and 19.7% against February 2021, according to the Index of Consumer Sentiment. Recent declines have been driven by weaker personal financial prospects, largely caused by rising inflation, declining confidence in government policy, and the bleakest long-term economic outlook since the early 1990s.
On Friday, oil futures prices increased more than 1.5% as investors digested the latest developments in the spat between Russia and the West over Ukraine. The US CPI which is causing real problems at the kitchen table according to the US President is being fuelled by the rising energy prices. If the political situation could cool the incoming supply would reduce the cost of fuel and therefore allow inflation to come down. Until these things happen the rate hike cycle is just going to add 1% by July 1st to the cost of everything.
Sergey Shoigu, the Russian defence minister, said the relations between the United Kingdom and Russia are "close to zero" as the Ukraine crisis continues. The UK government decided to send more troops to Poland on Thursday, leading to a clash between the foreign ministers of the UK and Russia. The UK has signalled that they won't be sending special forces into Ukraine and that the troops training there will be brought home in a timely fashion. They also reported that the so-called military exercises by the Russians are more than that.
The daily chart for Brent crude is clearly travelling higher and is within the range of a well defines pitchfork. A break above the recent swing high and $93.35 takes us to the upper bound of the internal trend channel. An acceleration to $100 could easily overshoot and travel higher at this rate.
US President Biden has been on the phone with European and UK leaders to try and finalise a way to handle Russia should there be continued escalations or even incursions. Whether Nord Stream 2 is a viable line to apply sanctions is not clear as the discussions around the sanctions on Russia via that means are at an impasse.
In the third quarter of 2021, the British economy expanded by 1% on quarter, the same as in the previous quarter, but still 0.4% lower than pre-pandemic levels.
This set the tone for the GBP for the entire day and the pound has maintained its relative strength across the board. Canada has had an upturn in its fortunes on the rising oil and weakening US dollar.
The ActivTrader sentiment indicator for the EURGBP shows that 76% of traders on the platform would prefer to be long the euro rather than the pound. This is great for contrarian traders as we can use that sentiment to sell into the rallies.
A few days ago, I highlighted a zone I was interested in shorting based on a Fibonacci retracement level and an intraday imbalance area which I expected to be filled before price did a 180º turn. 0.8478 did become a self-fulfilling prophecy as more traders were watching the 61.8% Fib level and they did all pile in, sending the EURGBP lower. Today’s good UK GDP news certainly helped the declines in price today, but also the ECB has been at pains to walk back some of the Hawkish sentiment after the ECB’s last meeting.
The EURGBP is also accelerating lower as the EURUSD weakens after sweeping the double top resistance. 1.1300 is still my target to the downside.
Of the major indices that I follow, only the UK FTSE100 is higher today. Over the last week, though the DAX, FTSE100 and DJIA are green, the rest are weaker.
After the bounce in late January, I was expecting more of a push this week in the S&P500. Though I am still of the mind that the rally is a Bear Market rally. The 4593-level identified as being a possible zone of interest worked, but the higher swing low to new higher swing high didn’t work out. This leaves some areas above that I would like to see being tested, but also if we break below 4450, I’d be looking out for a higher time frame lower low.
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