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Trend Traders Push USDJPY Higher

According to analysts, Odesa and Mariupol are likely to be the targets of the war in Ukraine as Russia moves ships into the Black Sea. As well as other attacks around the world, this will put a strain on relations and energy markets. Ursula von der Leyen, president of the European Commission, said that the European Union is "far too dependent on Russian fossil fuels." She said that the EU must "get out of that without hurting our own economy." That is the most powerful weapon against Putin.

Market Wrap

As expected, today's markets are being driven once more by headline news and central bankers' speeches. For the most part, when Fed Chair Powell spoke at the National Association of Business Economics, he largely reiterated the FOMC statement from last week. However, he added a bit of color when describing how in the past it had been possible to raise rates and not cause a recession. Economic soft landings had occurred at least 3 times in modern history in 1965, 1984, and lastly 1994. It could have been that the economy would have picked up following the tapering in 2018 had it not been for the outbreak of the pandemic. The other Fed members who spoke today kept to the more hawkish side of the statement prepping the markets for larger than 25bps rate hikes.

Russia has deployed more than a dozen warships to the Black Sea off Ukraine’s coast and Ukraine’s President has said the country could never surrender the capital Kyiv, or the cities of Mariupol or Kharkiv to Russia.

Saudi Arabia said attacks by Yemen’s Houthi rebels will influence oil production within the country and Russian Deputy Novak said we could see oil prices reaching $300 per barrel if Russian oil is shunned.

The Brent contract certainly looks like it is making its way back up to the $119.57 break-out level to test the lows of the 8th of March. Momentum as seen in the Price Action is still bullish as we haven’t made a significantly lower high and lower low combo. Also, the moving averages are all stacked bullishly and are currently rising. RSI and MACD are rising and we’re just waiting for the MACD to see if it can get back above the signal line.

The escalation in Ukraine and the stronger US dollar today has seen the EURUSD drop below its open but we’re still within Friday’s price range. Prices could come off if the US 10-year yield continues to appreciate as this has lifted the dollar in the past.

Despite today's bank holiday in Japan, the USDJPY is just breaking higher than Friday's highs, continuing the recent bullishness. The forex heatmap is not showing a particular bias for risk-on as the Swiss franc is bullish but the other safe-haven currencies are mixed. The Aussie and Kiwi are very bearish but the CAD is rising on the back of oil prices.

The USDJPY sentiment indicator is showing that an extreme number of traders in the forex pair are trying to short. The longer this trade is so one-sided the longer the squeeze will be. I would expect everyone to get stopped out or flip when we get to or above the 121.00 - 122.00 area.

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