Traders play defence - Putin raises the stakes

Chris Weston
Head of Research
21 Feb 2022
It’s a fluid situation in the evolving geopolitical thematic we see before us.

Traders are currently playing defence as lower liquidity, driven by the US Presidents Day holiday, exasperates moves. News that Putin will formally recognise the Separatist Republics of Donetsk and Luhansk in the East of Ukraine initially caused some buying of RUB, but it wasn’t long before traders sold the strength, sending broad markets into another round of de-risking, and we’re left with another bleak picture for the Asian markets open – our EU equity calls are also sinister.

Putin’s speech to the world was defiant – he took aim at NATO and suggested Ukraine having the desire for nuclear capabilities. It is clear Putin’s full narrative has seen any goodwill towards de-escalation take a big hit, and while we still look towards the Blinken and Lavrov meeting (Thursday) and potentially Putin and Biden meeting (Friday), and ask if they will still take place. This is a market that will be watching to see if Russia acts to ‘defend’ the Republics of Donetsk and Luhansk – if Putin needed legal reasoning under Russian law to do so, he has it now.

Following on from Putin’s speech, we’ve seen the US announce a limited set of sanctions, while headlines doing the round are that the UK are also set to announce sanctions on Russia – what these sanctions look like is yet to be seen, but we should hear more from Boris Johnson or Liz Truss on these – GBPUSD has been faded on the day, and the daily chart shows big supply and resistance into 1.3643 – the recent range of 1.3640 to 1.3500 we see on the daily looks tough to crack for now. Recall, we do have a raft of BoE speakers due out this week, which could affect rates pricing – Dave Ramsden starts the proceeding at 21:45 AEDT today and he is one of the more hawkish members on the BoE, calling for 50bp in the March BoE meeting in hikes of late.

USDRUB is eyeing 80 and a break could set off further de-risking – we see the Russian equity market getting carved up, EURUSD is moving almost tick-for-tick with the RUB and while there is a suite of traders lining up to buy EURUSD, it's hard to do so when the Russia/Ukraine tensions have many more turns that can play out. EU equities are looking weak and it's tough to be long these markets, as the set-ups look woeful – that said, any positive headlines will cause a solid bout of short-covering and that remains a risk for shorts – trading in a headline-driven market is not for everyone, it requires a dedication to being in front of the screens, an understanding of what is noise and what is signal and an ability to keep emotions in check. And, of course, nailing one's risk and position sizing will keep traders in the game.

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