Leaving for the weekend, there seem to be more questions about the Russian-Ukrainian tension than there are answers. The diplomatic game is likely to extend much longer than for the upcoming week, which adds to the confidence that traditional safe heavens and greenback will remain immune to sellers’ encroachments for some time.Despite some signs of a decline in geopolitical risks this week, a new round of escalation remains on the table. Investor appears to be doubting of the recent de-escalation signal which translates into resistance to downside movements in traditional defensive assets, which closely follow the vector of changes in such risks, such as gold. Since the beginning of February, the price of the precious metal has risen by 6%, despite increased hawkish rhetoric of the Fed and rising number of rate hikes expected by the market this year:Nevertheless, from a technical point of view, the prospect of a false breakout followed by bearish pullback looms: not only did the price reach the round mark of $1,900, but also the area near the mark acted as strong resistance in May 2021. A potential correction catalyst could be a meeting of the US Secretary of State Blinken with Russian Foreign Minister Lavrov next week. At the same time, due to expectations of a breakthrough in the negotiations, the price may go into decline even before the meeting outcome will be known.In the fixed income market, there has also been some recovery in demand due to a reassessment of the chances of a 50 bp Fed rate hike downward (from 60% to 30%). This was facilitated by three circumstances – the possible impact of the unstable geopolitical situation on the Fed’s March decision, lack of hawkishness in the minutes of the Fed meeting and waning bullish pressure in oil. The yield on 10-year bonds, after knocking several times at 2.05% resistance level without any meaningful follow-through, turned into a correction, falling below 2%.Oil prices, also fueled by a volatile geopolitical environment, are facing strong headwinds – the prospect of an Iranian nuclear deal that would bring Iran back into the oil market. From a technical standpoint, a deeper correction looks overdue, at least to $85/bbl, as rising momentum has caused prices to deviate significantly from the major moving averages:Today, several Fed representatives will make comments, including members of the FOMC, such as Williams, Brainard and Waller. Taking into account their opinions, the market may correct expectations on the March decision and, in case of sufficient clarity, speculation about the rate movement by 50 bp. at the next meeting could be on the rise again.
Source: Tickmill
