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Tensions in Europe: four volatile markets to watch


ArvinIG

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Volatility remains heightened, as investors brace for the impact of Russia-Ukraine tensions.

Russia
Source: Bloomberg
 
 

Markets are preparing for the risk of war in Europe, and it’s adding to the complex of issues driving uncertainty and volatility in global markets currently. From a humanitarian point of view, international relations experts suggest this could be catastrophic. For the markets, the concern is about the impact such a conflict will have on fragile energy markets, Europeans economic growth, and the broader financial system if sanctions are slapped on Russia. Here are 4 key markets that may experience volatility around this event.

Oil

The oil price has hit a fresh 7-year as a heft risk premium gets baked into the market because of risks a conflict between Russia and Ukraine would disrupt further global energy markets. Price has broken trendline resistance right now, with the daily RSI climbing back above the 70 mark. The beginning of a war in Europe this week would certainly see oil prices shoot higher. However, in the event such a thing fails to materializes, oil prices could plunge, making for a high risk, high reward short opportunity.

Oil price risk
Source: IG

Gold

If Russia invades Ukraine, it will come with sanctions that will see the country all but locked out of the global financial system. For many, stores of value will be required, and the Russian central bank might be forced to sell Dollars and increase its gold reserves. The anticipation of this dynamic is pushing gold to the top of its symmetrical triangle pattern, and potentially spark a break-out for the yellow metal’s price. The key levels to watch if this occurs are around $US1875 and $US1920.

Gold reserves Russia
Source: IG

EURUSD

The EURUSD is giving up its post ECB gains of a fortnight ago as traders factor in the growth impacts of war in Europe. Price has broken through support at the 100-day MA, and is finding fresh support at the 50 and 100 day MAs. Although the ECB would be unlikely to change policy on the basis of an attack – it would probably exacerbate Eurozone inflation – the greater risk to European assets is driving flow into safe havens in the US and Japan. A break of the 20 and 50 day MA would open a challenge of support of 1.1260 potentially, while the next level of resistance is 1.1375.

EURUSD
Source: IG

DAX

A war in Ukraine would be highly deleterious to German stocks. The impact would be somewhat stagflationary, in that it would prove a hit to both growth and inflation, as Germany falls out with its key energy importer, and lead to tighter monetary policy from the ECB because higher inflation. Momentum is already trending to the downside. Outright war would mean the DAX could make another challenge of support at the key 15,000 level

DAX Ukraine Russia
Source: IG

Kyle Rodda | Market Analyst, Australia
15 February 2022

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