Market Analysis

New economic sanctions against Russia are diminishing prospects of a smooth economic recovery in Europe

Eurozone economy headlines the economic docket this week

FOREX

The euro is coming under pressure, especially in relation to the US dollar, during early Wednesday trading. The conflict in Ukraine, the sanctions being deployed against Russia, and escalating energy prices, are generating apprehension in the face of diminishing prospects of a smooth economic recovery in Europe. The euro is, amongst all the major currencies, perhaps the one with the greatest exposure to the conflict in Eastern Europe, a situation that may trigger further weakness for the single currency. The ECB is facing the dilemma of trying to nurture economic growth in the aftermath of the pandemic, which may now require more prolonged stimulus, due to the conflict on its eastern edge, and trying to control inflation, which seems poised for further rises as energy prices spike.

Ricardo Evangelista – Senior Analyst, ActivTrades

Source: ActivTrader

 

GOLD

Gold prices fell during early Wednesday trading, despite the worrying developments in Ukraine, which are increasing the flows to haven assets; a scenario that would normally support gold. This dynamic can be explained by the precious metal’s inverted price correlation with the US dollar; the increase in demand for the greenback is bringing it close to maximums not seen since mid-2020, due to the American currency being a refuge asset in its own right and also to expectation that the Fed may, amidst escalating energy prices and rising inflation, decide to hike rates by 50 basis points when it meets again later this month.

Ricardo Evangelista – Senior Analyst, ActivTrades

Source: ActivTrader

 

OIL

WTI crude oil prices traded above $111 per barrel for the first time since 2013, during the early part of Wednesday’s session. As sanctions on Russia start to bite, traders are increasingly worried about finding alternatives to Russian oil in an already tight market. Russian oil exports represent approximately 8% of the total global output and its likely withdrawal from the international market will surely exacerbate the current scenario, of demand exceeding supply. As the military situation in Ukraine gives no signs of improving, and a growing number of operators exclude themselves from dealing with Russian energy, the outlook for oil prices remains very much tilted to the upside.

Ricardo Evangelista – Senior Analyst, ActivTrades

Source: ActivTrader

 

EUROPEAN STOCKS
European shares traded sideways on Wednesday as benchmarks hovered around major support zone following Tuesday’s sell-off. Yesterday’s pressure on stocks took place after investors looked for safety with Bond markets. The US 10-year treasury note nosedived to 1.68% during Wednesday trading while the US Dollar Index was almost 1% up – a typical sign of a “fear trading” move from investors. Today markets are stabilizing as bull traders defend significant support on all EU benchmarks. However, most investors are waiting for today’s EU inflation data for February where a slight 0.2% increase is widely expected. Any number outside of the 5.1% – 5.3% window would be likely to spark higher volatility towards EU assets, especially as ECB President Lagarde is expected to speak later today and lay the groundwork for the central bank’s next moves. Meanwhile, market volatility is also expected to surge towards energy shares and commodity markets as the US Crude Oil inventories looms.

Pierre Veyret– Technical analyst, ActivTrades

Source: ActivTrader

 

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