AUD/USD Advances As Geopolitical Fears Ease

  • AUDUSD
    (${instrument.percentChange}%)

Geopolitical Situation

We have seen a barrage of news around Ukraine this week and the latest development has created hopes of de-escalation, as US Secretary of State Blinken has agreed to meet his Russian counterpart Lavrov in Europe next week, provided there is no further Russian invasion of Ukraine [1].

The situation however remains tense and western officials continue to refute Russia's announcement of troop withdrawals from near Ukraine, which had then sparked another wave of optimism.

Commenting on the topic yesterday, Mr Blinken noted that "We do not see that happening on the ground" [2], while NATO Secretary General Stoltenberg said that "We are concerned that Russia is trying to stage as a pretext for an armed attack against Ukraine" [3].

Fed Commentary

Yesterday we got some comments from high profile Federal Reserve voters, who pushed for tightening.

Fed of St Louis Mr Bullard has been very vocal about his massively hawkish views and speaking on CNN, he reiterated calls for 100 basis points of rate increase by July 1. There are three Fed meetings up to that point, so this means that he wants at least one 50 basis points move on rates. [4].

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His Cleveland Fed counterpart Ms Mester also pushed on the tightening front, as she considers appropriate to increase rates in March and "follow with further increases in the coming months". [5]

Despite these comments however, market pricing around the rate path has moderated, as Wednesday's minutes from the Fed's January meeting revealed a measured stance and poured cold water on aggressive expectations. [6].

At the time of writing, CME's FedWatch Tool projects a 25 basis point rate hike in the next meeting (March) with a 67.3% probability, from a 50 bps move before the minutes. Furthermore, it now projects up to six increases by the end of the year, from up to seven previously. [7].

AUD/USD – H4

The pair extends yesterday's gains and heads towards its third straight profitable week, as the risk-sensitive Aussie benefits for the current optimism around Ukraine, while the US Dollar cannot elicit support from the recent hawkish Fed commentary.

AUD/USD now looks towards mid-0.7200, although the daily Ichimoku Cloud and the descending trend-line for January's high may pose headwinds. Daily closes above it though, can allow it to push for the 200Day EMA and the year's highs (0.7305-15).

Despite today's surge, current levels have the ability to contain the Aussie and along with a potential change in market sentiment, create pressure towards the EMA200 (0.7160-70). However, the downside seems well protected, as the ascending trend-line from January lows follows a little lower and a break of both would be required to shift bias to the downside.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 18 Feb 2022 https://twitter.com/StateDeptSpox/status/1494485800494542870

2

Retrieved 18 Feb 2022 https://www.state.gov/secretary-antony-j-blinken-on-russias-threat-to-peace-and-security-at-the-un-security-council/

3

Retrieved 18 Feb 2022 https://www.nato.int/cps/en/natohq/opinions_191847.htm

4

Retrieved 18 Feb 2022 https://www.stlouisfed.org/from-the-president/video-appearances/2022/bullard-cnn-monetary-policy

5

Retrieved 18 Feb 2022 https://www.clevelandfed.org/newsroom-and-events/speeches/sp-20220217-transitioning-monetary-policy

6

Retrieved 18 Feb 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20220126.pdf

7

Retrieved 27 Jun 2022 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html#

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