It’s been an incredibly volatile week for markets, as traders react to the sad news of Russia invading Ukraine. We’ve seen big moves across the board given the large wave of risk aversion which has taken risk assets and higher yielding currencies lower and driven support for safe-haven assets such as gold, JPY and the Dollar. Looking at the FX space in particular this theme has been well reflected in price action this week. Chatting with trade, it seems the key move that most are focused on is the move lower in GBP. We’ve seen the British Pound falling by almost 3% against the Dollar, by over 2% against JPY and generally moving lower across the board. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If not? There’s always next week.
What Caused the Move?
Russia-Ukraine Impact
The biggest driver behind the drop in GBP this week has been the fallout from Russia’s invasion of Ukraine. With the Dollar moving firmly higher on broad safe-haven support, GBP has taken a knock this week. Additionally, fears over how the conflict will impact European economies, including the UK, are also weighing on GBP. The UK government has unveiled a wide range of sanctions against Russia including the freezing of assets linked to 100 specified businesses and individuals. Additionally, Russian banks have had their assets frozen also and will be banned from using the UK financial system. Russian private jets will also no longer be able to use UK air space or land in the UK.
The sanctions, which have been mirrored by many governments around the globe, are expected to have some financial repercussions on the UK and add to the growing sense of uncertainty around the UK. There are also fears that if Putin continues his advance beyond Ukraine, the UK will eventually be dragged into a military conflict. If events begin to move in this direction, the current market dynamic is likely to extend with GBP remaining under pressure in the near-medium term.
Technical Views
GBPUSD
The latest rejection at the bear channel top has seen the market reversing back under the 1.3461 level. The decline has also seen price testing below the 1.3349 level briefly before reversing back above. With both MACD and RSI bearish the focus is on a further dip lower near term with the 1.3196 level the next support zone to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.