Ukraine Invasion Causes Major Geopolitical Risk. Sanctions Against Russia Cause Natural Gas and Crude Uncertainty.

Overview

Welcome to our look back at the previous month and a look ahead to what we might expect to see throughout April and beyond.

Unless you are a first-time reader of the Valutrades Monthly Review you will note that the title of this blog is almost identical to that of last month.  

The situation with global Central Banks has not changed much except for the fact that inflation is not only causing uncertainty but is also turning out to be a major socioeconomic problem with many lower-income families not being able to heat their homes or buy decent food.  As traders, we need to watch this carefully, as the normal tool for the Central Banks to keep inflation in check, is to raise Interest rates.  Unfortunately, under the current circumstances, there is a serious danger that these Monetary Policies might cause recessions which, with the resulting unemployment, make matters much worse for the bulk of the population.

Valutrades’ clients may have noticed the ability to trade Natural Gas on your MT4 platforms.  The price of Natural Gas has crept up over the month of March but, fortunately, has not reached the peaks of last October.  The flow and pricing of Natural Gas are a function of supply, sanctions, and the sad geopolitical situation in Ukraine.

Natural Gas

As mentioned in the overview, the march higher, in March, of price action on Natural Gas is bad news for consumers and industry alike.  Natural Gas is used in heating, transportation, production, and manufacturing and, therefore, is a main instigator of the inflation we are seeing now.

For traders, the chart shows a bullish channel and the temptation is to buy the dip.  However, this is far more of a fundamental story as the threat of Russia to cut off supplies if customers don’t pay in Rubles, is serious.

Meanwhile, many European countries are looking at alternative sources for Natural Gas which, while prudent under the environment of Russian sanctions and threats, will inevitably increase costs.

Crude Oil

All previous predictions and strategies have gone out the window since the invasion of Ukraine.  The charts tell the story with Brent Crude Spot reaching  $135.25, at the beginning of March, and WTI Spot reaching $131.70.  Price action is now consolidating but still over the $100 range.

At the end of March, the White House announced the release of 1,000,000 barrels per day for the next 6 months from the Strategic Petroleum Reserves (SPR).  Will this keep the price of Crude Oil under control?  In theory, yes, but in practice, we don’t know yet.  This action may cause OPEC+ to take action in the opposite direction and the big oil producers in the United States will need to be convinced that the US Government will be replacing the SPR later this year and into 2023.

As with Natural Gas, the threats from Russia and the decisions of major economies like Germany will affect price action on Crude throughout April and the rest of the year.

US Equities

The uncertainties heading into March were soon abated mid-month with a sudden recovery of investor confidence which broke the key level of resistance, exiting a double bottom on this chart on the S&P 500.

However, price action dipped near the end of the month and indicators like the MACD look like they might be heading into bearish territory.  The reason for this is the idea that the US Federal Reserve might be wanting to raise Interest Rates more aggressively than the 0.25% per meeting which was projected throughout 2022 and into 2023.

JPY

This chart on USDJPY tells the same story as any JPY pair.  The last time we saw such a weak Yen (125 to the dollar) was almost 7 years ago and we can attribute it to a few factors.

Soaring energy prices have hit Japan’s huge trade deficit which has weakened the yen.  As other Central Banks have raised Interest Rates to fight inflation, Japan had the opposite problem with months of deflation so, the differential in Interest Rates has had a negative effect on JPY.  In the same vein, a huge differential in Japanese government bond yields vs US government bond yields has had holders of JPY converting the currency to buy bonds in other jurisdictions.

From the technical standpoint, we won’t take seriously any JPY strength until we see a break of support at 120 on USDJPY. 

EUR

Last month we looked at the steady fall of the Euro based on the fact that this economic region will feel the impact of the Ukraine crisis more than others.

In March, EUR continued to lose against the comdolls but showed slight gains against USD.

We may see more EUR strength after price action bounces off the lower trend line on EURUSD.  On the fundamental side, in the international “Game of Chicken” Christine Lagarde finally blinked and hinted at Interest Rate rises later this year and into 2023.

Gold

As any trader knows, Gold reacts to geopolitical events and, quite simply, any escalation in the violence in Ukraine or more sanctions against Russia will send the price of Gold higher.  On the contrary, any good news will send Gold lower.

We can now see a descending triangle forming on Gold and, as we know, price action can break either way…below, through support, or above, through the upper trend line.  Support seems to be strong at the psychological round figure of $1,900 and we will keep an eye on this.

Silver

We see a very similar situation to Gold as XAUUSD has formed a descending triangle throughout the month of March.

The main difference is that price action is firmly sitting at a level of support at $24.55 and price action is trying to break a double top.  Be aware of these technical levels going into April.

That’s all for now.  Make sure you subscribe to the Valutrades blogs and videos and we will see you here at the end of April.