Overnight Headlines

*Asian stocks mixed, US futures green as hopes hang on diplomacy

*US Secretary Blinken accepts invitation to meet Russia’s Lavrov next week

*Japan’s inflation slows toward zero as global price gap grows

*Gold hits new eight-month high at $1900 before pulling back

US equities tumbled on Thursday as geopolitics continued to push investors to safe havens. The major equity indices are on pace for their second straight negative week with the Dow down 1.2% and the S&P500 lower by 0.9%. Tech underperformed while defensives led the gains. But futures have turned positive on prospects for a diplomatic solution, with a scheduled meeting late next week between the US and Russia.

USD was little changed after another choppy day of price action. USD/JPY closed down by 0.5% at the lowest level in two weeks. EUR/USD whipsawed but settled above the 50-day SMA at 1.1330. GBP climbed to the top of the recent range and is steady this morning above 1.36 after weakness in EUR/GBP which closed below 0.8350. NZD is challenging trendline resistance from the November high around the 50-day SMA at 0.6728.

Market Thoughts – Geopolitical headline havoc in full effect

All that matters in markets in the near term is the Russia-Ukraine situation. We had another risk-off exodus from stocks to bonds as news darkened during Thursday’s session. But much like most of this week, sentiment has changed again with the announcement of a meeting between foreign secretaries late next week, even though there are continued reports of shelling across the Ukrainian borders.

We get several Fed speakers today including Evans, Waller, Williams and Brainard. Any hints from policymakers regarding the pace of tightening or even the chance of an emergency rate hike before the mid-March meeting will be in focus. That said, bets on a supersized 50bp rate hike have been pared back this week with a quarter-point raise now more likely.

Chart of the Day – AUD/USD top of the weekly major chart

Perhaps surprisingly, the aussie is the top performing major this week as the currency benefits from slight improvements to risk sentiment. Crucially, AUD has also not been exposed to the fall in oil prices as say CAD and to the Ukraine crisis like European currencies. The domestic jobs data told us that the current low unemployment rate is normally at a level to pressure the RBA into being more hawkish. But next week’s wage growth is more important in this regard. 

Risk sentiment is the main driver, and the large, short positioning still evident in AUD. After dropping to lows below 0.70 in late January, prices have advanced above the 50-day SMA. Overhead resistance lies at 0.7242 and 0.7262, with the next Fib level (61.8%) above the January pivot high at 0.7314. Risk-off sees 0.71 and the 0.70 zone as support.