Peace talks weigh on commodities, AUD and NZD

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Supply chain concerns were so high last week it seems, with much of the major commodity markets (including gold) falling.

U.S. cash market close Monday:

  • The Dow Jones Industrial fell 105 points (0%) to close at 32,945.24
  • The S&P 500 index rose -31.2 points (2.51%) to close at 34,058.75
  • The Nasdaq 100 index fell -255.19 points (-1.92%) to close at 13,046.64

Asian Futures Contracts:

  • Australian futures on the ASX 200 are down -61 points (-0.85%), the spot market is currently estimated at 7,088.40
  • Japan’s Nikkei 225 futures are up 10 points (0.04%), the spot market is currently estimated at 25,317.85
  • Hong Kong Hang Seng futures are down -526 points (-2.69%), spot market is currently estimated at 19,005.66
  • China A50 index futures are down -141 points (-1.07%), spot market is currently estimated at 13,222.62

A fourth round of peace talks between Ukrainian and Russian officials was held via video link overnight. Although they have yet to produce solid results, they are seen as a step in the right direction and the hope remains that a solution can be found. And those hopes have removed a key pillar of commodity price support that surged last week on the supply disruption.

US pressured China in ‘intense’ meeting in Rome not to provide military aid to Russia, with White House warning of ‘significant consequences’ if they do were doing it. Yet despite these positive developments, Wall Street was trading lower as investors were allowed to refocus negative energy on the prospect of multiple Fed hikes.

Peace talks weigh on commodities

WTI slid to $100, meaning it is down more than -23% from its 14-year high set last Monday. And with that, we are now seeing calls for $50 oil – just a week after seeing calls for $200. We think both of these scenarios are far-fetched, but in the short term, it could be between $90 and $110.

Gold fell to a 6-day low and is now down around -5.8% from last week’s high. Still, against the backdrop of its 16.4% rally from the January low, it could still be part of a healthy pullback. And the positioning of traders over the past week showed that the big speculators and managed funds are staying in the metal for long, and we doubt they’ve all rushed to cover due to a small retracement.

Euro rallies hopes of peace talks

Sometimes a little can go a long way and that seems to be the case with the stronger euro overnight. On a broad rise, the Euro showed an uptrend outside of the day against all major currencies. The US dollar was the second strongest major currency and traded higher against all majors except the euro as traders refocused on the prospect of multiple rate hikes.

The AUD and NZD were dragged lower by commodities and the strengthening US dollar. NZD/USD fell to a 2-week low in line with yesterday’s bearish bias, and our target remains either 0.67 or trend support from the January low (whichever comes first). USD/JPY closed above 118 for the first time since January 2017 and is less than a trading day away from a 6-year high.

If commodities continue to weigh on the Aussie and traders keep betting on the dollar, a breakout of trend support seems inevitable. The bearish momentum is also on its side, having formed an impulsive move lower and a strong move lower. Still, there is a chance that an ounce could break back above 72c but, as long as prices remain below the 0.7240 support zone, our bias remains bearish and for a run towards 0.7100. While a break above 0.7245 invalidates our bearish bias and assumes the trendline remains valid.

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