War continues raging in Ukraine for almost 20 days now, with heavy casualties including civilians and children. Millions of refugees are fleeing Ukraine, creating an additional issue for the EU, which has vowed to accept all refugees entering its borders from Ukraine.
On Friday, reports of diplomatic negotiations between Russia and Ukraine raised hopes of a de-escalation of the crisis. Diplomatic talks between Russia and Ukraine have failed to yield any results up to now and Russian attacks have continued throughout the weekend.
Leaders across the world have condemned Russia’s actions and are imposing severe sanctions against Russia. Australia, Canada, Britain, and Japan have announced sanctions against Russia, targeting Russian banks and oligarchs. The US and the EU have imposed severe measures against Russia, which aim to deliver a hard blow on the country’s economy, including sanctions on Russia's sovereign debt so that the country cannot raise money for its state financing.
The US, the EU, and their allies have blocked several Russian banks from access to the SWIFT banking system and have imposed restrictions on Russia’s Central Bank. These measures aim to cut off Russian banks from the international financing system and undermine the Russian Central Bank’s ability to support the collapsing Rouble.
In a bold move last week, US President Joe Biden announced that the US would be banning all oil and gas imports from Russia. The announcement of US oil sanctions sent oil prices skyrocketing to over $130 per barrel last Tuesday. The US, however, is not highly dependent on Russian oil, importing only a small percentage of its crude oil from Russia. The UK has similarly vowed to phase out its dependency on Russian oil and major British oil companies are already boycotting Russian oil.
The EU has not yet imposed bans on Russian oil and gas imports, even after being pressured to do so by western allies. The EU relies heavily on Russian energy-related imports, with almost 30% of the crude oil, 47% of its coal, and over 40% percent of its gas imports coming from Russia. Germany, the Eurozone’s largest economy, is currently importing approximately a third of its oil and 45% of its coal from Russia. The EU is trying to scale back its dependency on Russian imports with the German economy and climate minister Robert Habeck stating “With each day, indeed each hour, we are saying goodbye to Russian imports”. The EU has opted instead to impose new sanctions on Russian oligarchs and further exclude certain banks from Russia’s ally, Belarus, from the SWIFT system.
The ECB, the Fed, and other major Central Banks are already trying to strike a balance between soaring inflation rates and economic woes since the onset of the pandemic, and the war in Ukraine is complicating matters further. Sanctions against Russia are driving the price of key commodities up, especially energy-related commodities, further increasing inflation.
Global commodity prices continued to surge last week over Russia supply fears, posting their biggest weekly advance on record since 1960. Energy-related commodities especially, such as oil and natural gas, reached record prices. European natural gas prices surged to an all-time high last week, with the European benchmark Dutch front-month gas touching 345 euros per megawatt-hour, while global oil prices spiked to over $130 per barrel.
Other commodities, such as wheat and metals reached record highs last week, driving inflation up. Russia and Ukraine account for about 29% of global wheat exports, 19% of corn exports, and 80% of sunflower oil exports, and the prices of these commodities are soaring. Aluminum hit a record high of $3,450 per ton on the London Metal Exchange and three-month nickel jumped to a record high above $100,000 a metric ton, with the London Metal Exchange suspending temporarily its trade. Gold jumped above $2,050 per ounce last week, its highest price since the peak of the pandemic in August 2020. The price of other metals, such as copper, palladium, and platinum also spiked during the week.
Stock markets have been plummeting amid a rapid increase in the price of commodities and concerns about further military escalations. Fears that sanctions against Russia would have a severe impact on the global economy have been pushing markets down. The German DAX index and the euro zone's STOXX index tanked early last week but regained some of the lost ground at the end of the week. Similarly, the Dow tanked last Tuesday but rallied a little later in the week, after renewed negotiations between Russia and Ukraine sparked hope for a diplomatic resolution to the conflict. The Rouble has plummeted to historic lows these past few weeks, but regained strength at the end of last week, while the Russian Stock Exchange remains closed.
On Friday, a tweet attributed to Russian President Vladimir Putin was circulated, suggesting that there are ‘certain positive shifts in talks with Ukraine’. Markets reacted swiftly to the news, with gold and oil prices retreating, while risk assets, such as cryptocurrencies were boosted temporarily and stock markets climbed. During the weekend, however, it became apparent that there is no headway to diplomatic talks, and war in Ukraine rages on.
Important calendar events
The dollar index continued climbing last week, rising close to 100, boosted by the war in Ukraine and expectations of a Fed rate hike. The dollar is considered a safe-haven currency and rises when a risk-aversion sentiment prevails, as investors turn towards safer assets.
Severe sanctions against Russia have been sending the price of key commodities up, and inflation in the US is soaring. CPI data released last week showed that inflation rates in the US continue to rise, reaching 7.9% in February, which is the fastest annual increase in 40 years. Rising inflation rates in the US boost the dollar, amid expectations that the Federal Reserve might tighten its monetary policy to tackle inflation, as the next meeting of the US Central Bank is drawing near.
The highly-anticipated Fed meeting is scheduled for this Wednesday, March 16th and its outcome is expected to affect the dollar considerably. The US Federal Reserve is expected to raise its benchmark interest rate by at least 25 base points on Wednesday, while some analysts predict a sharp interest raise of 50 base points. A series of Fed rate hikes have already been priced in by markets for this year, driving the dollar up over the past few weeks. If the Fed decides on a conservative rate hike of 25 bp points, it might seem less hawkish than expected and could drive the dollar down. A more hawkish policy and a higher rate hike could see the dollar climbing even further, although this scenario seems less likely.
The Euro fell heavily against the dollar last week, with EUR/USD plunging as low as 1.08 at the beginning of the week, its lowest rate since May 2020. A risk-aversion sentiment has prevailed, as there seems to be no end in sight for the crisis in Ukraine. The possible effects of the severe sanctions against Russia on the global economy have also turned investors’ attention towards safer assets, buoying the dollar. Eurozone’s reliance on Russian imports is causing concern to markets, with European stock markets experiencing heavy losses over the past few weeks.
During the week, the Euro regained some strength, as the ECB raised hopes of a shift towards a more hawkish fiscal policy. However an increase in the ECB’s benchmark interest rate is not in sight yet, and the Euro retreated against the dollar again at the end of the week. If the currency pair goes up, it may encounter resistance at 1.148 and further up at 1.169, while if it declines, support may be found at the 1.063 level.
Last week, the European Central Bank announced a surprising decision to wind down its bond-purchasing program sooner than expected, placing the end of the bond-buying program in the third quarter of 2022, if financial conditions in the Eurozone allow it. ECB President Christine Lagarde stated in a press conference that the war in Ukraine has changed the financial landscape, with prices of key commodities skyrocketing in Europe. The ECB has been trying to strike a balance between soaring inflation rates in the Eurozone and struggling economies trying to recover in the wake of the pandemic, with several countries, such as Italy and Greece risk falling into a new debt crisis once the ECB’s asset-purchasing program ends. The ECB however is trying to avert a disastrous economic effect known as stagflation, the mix of economic stagnation and high inflation rates.
The ECB has further announced that it does not plan to raise its benchmark interest rate before the end of its bond-buying program in the third quarter of 2022. Many market analysts now predict that the ECB will raise its interest rate by at least 30 base points in Q4 of 2022. The ECB’s sudden shift towards a more hawkish monetary policy bolstered the Euro temporarily, which has been at a disadvantage due to the difference in interest rates between the EU and other major Central Banks. As the Fed and the BOE are expected to raise their benchmark interest rates again this week though, the Euro is still under pressure.
Inflation rates were already soaring in the EU and the war is driving prices even higher. Last week, German CPI data showed that inflation in February rose by 5.1% on an annual basis, for one of the Eurozone’s largest economies. Prices of key commodities in the Eurozone, and especially energy-related commodities, are soaring over Russia's supply fears. European natural gas prices surged to an all-time high last week, with the European benchmark Dutch front-month gas touching 345 euros per megawatt-hour, while oil prices spiked to over $130 per barrel. Other commodities, such as wheat, nickel, and aluminum reached record highs last week, driving inflation up.
This week, important economic indicators scheduled to be released for the Euro, include French Final CPI, ZEW Economic Sentiment, and German ZEW Economic Sentiment. Eurogroup and ECOFIN Meetings are also scheduled for this week and may cause some volatility for the Euro.
The sterling has been weakening against the dollar these past few weeks, with the GBP/USD rate following a downtrend. GBP/USD fell below the 1.317 level support last week, closing near 1.303 on Friday, as the dollar continued to rise, supported by increased risk-aversion sentiment. The currency rate is currently at its lowest level in more than two years. If the GBP/USD rate goes up again, there may be resistance at the 1.364 level, while if it declines, further support may be found near the 1.284 level.
The sterling has been under pressure since the war between Russia and Ukraine broke out and investors turned toward safer assets. Rising commodity prices and soaring inflation rates in the UK are competing against an economy that is still sluggish in the wake of the pandemic. The Bank of England has already signaled a shift to a more hawkish policy and a return to pre-pandemic interest rates this year in an attempt to tackle inflation.
The Official BOE interest rate is going to be announced this week on Thursday, March 17th, just a day after the Fed’s interest rate announcement. The Bank of England is expected to raise its benchmark interest rate on Thursday by at least 25 base points, after already performing two consecutive rate hikes in its previous meetings. Markets have already priced in approximately six BOE rate hikes this year, but a steeper rate hike is considered a possibility and would give the pound a boost.
The political climate in the UK has not improved significantly, although the public’s attention has turned toward the war in Ukraine. British PM Boris Johnson seems to be weathering the storm, although his position is still precarious and he is focusing his diplomatic efforts on the Ukraine invasion to restore his reputation.
USD/JPY was volatile last week climbing above the 116.3 resistance level and continuing to rise before closing near 117.3 on Friday, its highest rate in six years. Both the Yen and the dollar are considered safe-haven currencies, but the Yen has been outperformed by the dollar, since the beginning of the war in Ukraine. If the USD/JPY pair continues to climb, it may find resistance near the 118.5 level, while if it declines, support might be found at 114.8 and further down at 113.4.
The Yen gained a little strength over the past few weeks, as risk-appetite diminished over the war in Ukraine and investors turned towards safer assets. The currency, however, has not picked up pace as much as other safe-haven assets, as the BOJ’s fiscal policy is keeping the Yen down.
The Bank of Japan is holding its monetary policy meeting this week, on March 18th. The BOJ’s meeting is going to follow the Fed and BOE meetings, in which the two major Central Banks are expected to raise their benchmark interest rates. The BOJ however, seems set to maintain its ultra-accommodating monetary policy, and a rate hike is not expected.
Low inflation rates in Japan and a weakening economy are steering the BOJ towards maintaining its dovish monetary policy. Inflation in Japan is far below the BOJ’s 2% goal, although as prices of imported goods and energy continue to increase, inflation may rise.
The difference in interest rates with other major Central Banks, especially with the Fed and the BOE puts the Yen at a disadvantage. Coming right after the Fed’s and the BOE’s meetings, which are shifting towards a more hawkish policy, the BOJ’s dovish stance might drive the Yen further down.
Gold price continued rising last week, climbing above $2,050 per ounce, its highest price since the peak of the pandemic, in August 2020. Severe sanctions against Russia have triggered fears of a global economic crisis. A risk-aversion sentiment has prevailed over the past few weeks, driving investors towards safe-haven assets.
On Friday, the gold price retreated a little, and risk assets were boosted, after the circulation of a tweet, attributed to Russian President Vladimir Putin, suggesting that there are ‘certain positive shifts in talks with Ukraine’. Gold price closed near $1,988 per ounce on Friday and, if it continues to decrease, support may be found near 1,877 per ounce, while resistance may be found around $2,000 per ounce.
Sanctions against Russia are likely to have a heavy impact not only on the Russian economy but on the global economy as well, especially on the Eurozone, which relies on Russia for key imports. The price of oil and other key commodities, such as corn and wheat, is already climbing and prices are expected to climb further as the crisis unfolds, contributing to rising inflation rates in the Eurozone. The price of gold benefits from rising inflation, since it is often used as an inflation hedge.
The effect of rising inflation on gold may be temporary though, as soaring inflation rates may push major Central Banks towards a more hawkish policy. The Fed, the ECB, and the BOE are expected to tighten their monetary policies, boosting the value of real yields and putting pressure on the price of gold. The Federal Reserve and the Bank of England are both expected to raise their benchmark interest rates by at least 25 base points this week, while more rate hikes are expected in the coming months if inflation rates remain high.
US President Joe Biden announced last week that the US would be banning all oil and gas imports from Russia, catapulting oil prices to over $130 per barrel last Tuesday. The US, however, is not highly dependent on Russian oil, importing only about 3% of its crude oil from Russia.
On Friday, the WTI price fell a little, closing near $109.5 per barrel, as there were hopes of de-escalation of the Russian – Ukraine crisis. WTI is trading in an uptrend, but in case the uptrend is reversed, support may be found near the $100 per barrel level and further down around $90.0 per barrel.
US sanctions raised fears that the EU would follow suit and impose an embargo on Russian energy-related products. A potential EU oil and gas plan would have a considerably higher impact, creating a severe energy crisis and driving oil prices further up. The EU however, has not yet imposed bans on Russian oil and gas imports, since the Eurozone relies heavily on Russian energy-related imports, with almost 30% of the crude oil imports, 47% of its coal, and over 40% percent of its gas imports coming from Russia.
In addition, most energy consumers, are boycotting Russia’s oil, with energy giants Shell and BP announcing that they would stop buying oil and gas completely from Russia. Most consumers are seeking alternative suppliers, as the cost and the risk of importing oil from Russia have become prohibitively high. Russia is the world’s second-largest oil exporter after Saudi Arabia, shipping around 5 million barrels of crude oil per day, approximately half of which goes to the Eurozone.
Negotiations of an Iran oil deal over its nuclear program have stalled as Russia seeks guarantees that its trade with Iran would not be affected by Russian sanctions. If the deal goes through, Iran could add as many as 900,000 barrels a day to global supplies, which might provide some relief to the energy crisis.
On Friday, a tweet attributed to Russian President Vladimir Putin was circulated, suggesting that there are ‘certain positive shifts in talks with Ukraine’. Risk assets, such as cryptocurrencies were boosted, with BTC climbing to $42,500 and ETH to $2,700. During the weekend, however, cryptocurrencies slumped again as there seems to be no headway to diplomatic talks, and war in Ukraine rages on. Bitcoin fell as low as $38,500 during the weekend and Ethereum fell to $2,500.
If Bitcoin price continues to decline, it may find support at $36,000 and $33,000, while resistance may be found at $40,000 and further up near $44,300. Ethereum has fallen below its $2,600 level support and, in case of ETH price decreases further, support may be found around $2,300. In case its price goes up, it may find resistance at $3,000 and further up at $3,400.
Cryptos have been under pressure since the beginning of the year, hit by a bout of risk-aversion. Mounting geopolitical tensions have been driving the price of cryptos down, as investors shy away from risk assets.
Increased expectations that the US Federal Reserve and other major Central Banks will raise their benchmark interest rates also put pressure on crypto markets. Both the Fed and the BOE are expected to raise their benchmark interest rates this week, although the rate hikes are widely expected and have been mostly priced in by markets.
Most major cryptocurrencies have received a boost over the past couple of weeks, as demand from Russian and Ukrainian markets increased. Bitcoin volume from Russian markets has increased considerably, as Russian investors aim to escape the plummeting Rouble and Russian sanctions.
BTC/USD 1h Chart
ETH/USD 1h Chart
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