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Trader thoughts - playing defence in a headline driven market

Chris Weston
Head of Research
17 Feb 2022
USDRUB continues to guide broad markets - as headlines from a US envoy to the UN detailed that they have evidence of a potentially imminent Russian invasion.

A fact Russia is denying, we saw USDRUB moving higher from 75.60 and traders subsequently playing defence in other markets.

Red- RUBUSD, white – US500


(Source: Bloomberg - Past performance is not indicative of future performance.)

It's hard to trade a headline-driven market at the best of times, but one where we get such a contradictory narrative there is so much noise and it's hard to know what is signal. It suggests volatility measures should stay elevated and this means taking the position sizing down, being nimble and able to react more aggressively. The news flow will chop around though, especially as we look ahead at diplomatic talks next week, with US Secretary of State Anthony Blinken expected to meet Sergei Lavrov and no doubt there will be a headline fest from this.

Still, for now, we see the NAS100 -2.3%, the US500 and US30 both currently 1.6% and at lows of the day – by way of style factors, we see value, buyback names and profitability outperforming, while growth and high short interest are copping it. EU Stoxx closed 0.6% lower, but given where US indices are now, our opening calls for Europe/UK are showing these markets down further from the cash close. Asia should open weaker, with our AUS200 down 0.9% and JPN225 -0.8%.

We’ve seen the JPY outperform with short NOKJPY the play of the day and helped by crude coming off 2%. The EUR has been offered, with EURGBP looking like we test the 83-handle soon enough. EURAUD is sitting on support from the 1 Feb low and I suspect this breaks for a run into 1.5600. AUDCAD was my play of the day in The Trade Off and after a run into the 10 Feb highs, we’re seeing some indecision in the price action – I still like this as a play even if the market is playing risk on/off and we see greater movement in the JPY and USD.

GBP is holding in well on the day and pushing into 1.3650 and out of its recent congestion range – one for the radar, but if keen to play the crosses, GBP could be one leg that works.

XAUUSD – daily


(Source: Tradingview - Past performance is not indicative of future performance.)

We’re also seeing a bid in US Treasuries, which are defining the safe-haven mindset of the market – 2yr Treasuries are -4bp and US real rates are down hard, which is no doubt helping the gold trade which is doing rather nicely here and breaking above the 16 Nov highs of 1877 – at the risk of giving it the kiss of death, it's been a while since we saw the chart of gold looking so bullish, and on any timeframe. XAUEUR and XAUJPY are also breaking out nicely and if the EUR does indeed continue to find sellers in the Russia/Ukraine tension then XAUEUR might be the place to express a bullish view.

Crypto has shown us once again that it is a high beta risk asset, and it has a dark sinister look that could morph into something ugly. Recall, these instruments can be traded long or short as a CFD.

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