European markets underwent a rather choppy session yesterday, clawing their way back from the lows to finish more or less unchanged on a report that the EU was said to be mulling the idea of issuing joint bonds in respect of energy and defence spending. This would be to reduce its dependence on Russian energy, as well as lessen its reliance on NATO when it comes to safeguarding its security.
As straw-clutching goes it was quite a leap, but such is the fickle nature of sentiment, the prospect of a new stimulus plan in the wake of all this volatility was seen as a welcome development, albeit with the enormous caveat that, as with anything EU related, the devil would be in the detail. In any case the report was quite quickly played down by the EU Commission’s vice-president and European green new deal head Frans Timmermans.
US markets also finished lower at the end of a rollercoaster session, at one point rallying strongly on a misinterpretation of a story on Monday night which claimed that President Zelensky had suggested Ukraine might be prepared to drop its insistence on NATO membership, and that there might be some room for compromise on some of the issues. This story followed on from comments from the Kremlin on Monday that it was prepared to stop its military action immediately if Ukraine agreed to recognise the Crimea as Russian territory, Donetsk and Lugansk as independent states, and change its constitution to guarantee neutrality.
The gains in US markets didn’t last as stocks reversed course and closed lower, after Russia responded to the decision by the US and UK to ban Russian oil imports, by imposing an export ban of its own on all products and raw materials until 31 December. This is likely to be typical of market moves from here on in as the ebb and flow of headline risks continues to pull markets this way and that.
As the debate over a no-fly zone continues to rage, there have also been calls for NATO to help bolster the Ukrainian air force with new aircraft. As a solution Poland suggested that it could gift its entire fleet of MiG-29 aircraft to the US, in exchange for the same number of F-16s. The US could then make these MiGs available to the Ukrainians if they needed them, though how Russia might react to this could be problematic. Any further movement on this topic could well be market moving as Russia steps up its campaign to make progress into Ukraine.
Today’s European open looks set to be a positive one for now, as crude oil prices continue to push higher, with Brent crude moving above $130 a barrel.
EUR/USD – finding support at 1.0800 trend line support from the 2016 lows at 1.0340. This needs to hold to see a rebound back towards 1.1000 and then on to 1.1200. A fall below the 1 0780 area has the potential to open up a test of the 1.0650 area.
GBP/USD – having fallen below the December lows at 1.3160, we could see further losses towards the 1.2850 level. Resistance now comes in at 1.3180, and behind that at the 1.3450 area.
EUR/GBP – continues to squeeze higher pushing above the 0.8320 area and could well push all the way up to 0.8420. Support remains back at the 0.8200 area, with a fall below this level, opening a move to 0.8100.
USD/JPY – has moved back up to the 115.80 area and the highs last week, with a break targeting the 116.30 area. A break below support at the 114.40/50 area opens up the risk of a move towards 113.80.