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Ukraine's turmoil has shifted flows to safe-haven FX pairs

Technical analysis is great for identifying market entry and exit points, but the fundamentals will always push the markets to those bigger levels of support and resistance.

War on European soil will move flows out of the euro, out of the Canadian dollar, oil and equities.

Market Brief

There wasn't little change in Asian equity markets overnight, though the major indices in Europe and across the US futures are on the back foot. Last night was the economic data focus and in the minutes of the Federal Reserve's January policy meeting, they indicated that while a rate hike is expected in March, there was no discussion of a larger than usual rate hike of 50 basis points. This is going against the recent sentiment but is also in line with the CME's Fedwatch tool. In addition, they suggested that Fed policymakers aren't sure exactly how aggressively to tighten monetary policy following their first move. In January, the Australian labour market reported a 12.9k rise in employment (down from 64.8k in December), while the unemployment rate remained at a pandemic low of 4.2%.

UK and Eurozone data releases are not going to be market moving in the London session, but the US sees several scheduled data points that could be interesting. Most noteworthy will be the report on new jobless benefit claims every week. The number of claims has fallen for three weeks in a row following a sharp rise in early January. There is a probability this week's unemployment rate will fall further, which will boost expectations for the February employment report that is due less than two weeks before the next monetary policy meeting of the Fed.

As the Covid situation improves, the Philadelphia Fed manufacturing survey will provide a further indication of US activity's rebound. Earlier this week, the New York equivalent was disappointing, but these two surveys don't always move together. US housing starts, which seem to have been on an upward trend of late, may have slipped at least modestly in January.

The biggest developments since the Asia-Pac session into the London session have been in Ukraine. The Organization for Security and Co-Operation in Europe (OSCE) recorded multiple shelling incidents along the line of contact in east Ukraine and Ukraine military updates said Russian occupying forces fired on a village in the Luhansk region.

The rest of the day, because of this escalation will be determined by further developments in this region. The forex markets are moving into the yen but also into the New Zealand dollar, so currently no pure risk-off situation. The Canadian dollar is on the back foot which suggests that the oil markets at least see problems ahead.

The $92.64 is a potential target for a liquidity grab but due to the sentiment, I think we visit the $89.30 price level first.

The euro also dropped on the news this morning but has since recovered most of the decline. 1.1300 remains a serious level of support and maybe today’s news was a buy the dip opportunity.

The USDJPY has swept the 115.00 price level due to the push into the safe-haven Japanese yen and Swiss franc. If the move in the USDJPY was a liquidity grab there is nothing we can do to the upside until there is a new higher high, higher low, market structure to trade from. If these moves continue due to the situation in Ukraine the next level of support, I have identified is around 114.50.


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