The week has been pushed by the headlines coming out of Eastern Ukraine. Unfortunately, the current news is worsening rather than getting more hopeful. The markets are clearly risk-off, so any potential sell the rips in the equities is the current strategy. However, because it is news-driven the best thing to do would be to step aside and wait.
I have no idea what will happen over the weekend with regard to the geopolitical tensions in East Ukraine. The reports from the region are not de-escalating and the narrative is pushing towards some sort of conflict, which would lead to either an annexation, land grab, or Mexican standoff situation.
What we do know is that gold has risen on the back of the increasing tensions, the euro has seen flows out of the single currency and oil is in a corrective pattern. If anything, oil and especially Brent crude has done what I expected. The technical analysis on the chart highlighting the break of market structure set us up for a decline down to the sell stops at $89 per barrel. Now that has been and gone, there is a possibility that the liquidity grab there was designed to get more buyers in to take us to new highs for the year.
If however, the Iranian oil situation goes as the rhetoric would suggest, we could have more supply coming in just as demand looks to be dropping. $93-$94 then becomes important as we need to see either a very strong push through that zone up to and beyond $95, or as my predictive pattern suggests, we see a drop from there. A break below the neckline of $89 would confirm the head & shoulders pattern and maybe we go sun $80 again. For that to happen and for further declines, we should then look to the COT report for the oil futures and see if the producers have started to increase their hedges and we haven’t seen that yet.
The forex heatmap doesn’t really help today unless you are shorting the EURUSD. The Antipodeans are mixed and rising oil will see the CAD flip into the close. The yen and Swiss franc haven’t been able to match the strength relative to the dollar.
Assuming geopolitics ruins the sentiment into the start of next week, I see EURUSD collapsing towards 1.1170 in the coming days. That will accelerate as we approach the March FOMC meeting.
The main scheduled news into the end of the week was from the Canadian retail sales which dropped more than expected in the core reading. Canadian headline retail sales came in above market expectations but still worse than the previous reading. The US Existing Homes Sales however beat expectations by a wide margin coming in at 6.5M and at a 12-month high.
I should mention gold as a lot of traders and investors have been patiently waiting for this to break higher. The good news for them is that the volume is building so this confirms the break higher than November’s swing high. There is still the high at $1916 and then the swing highs leading up to 2021 high to worry about as potential zones of resistance. Price action, momentum, volume, and sentiment are all pointing higher, and geopolitics is a good catalyst.