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February 28, 2022

Sanctions Shock Markets- What You Need to Know

Frank Cabibi

Major USD pairs opened lower before immediately pairing losses from the lows today. Europe placed harsh restrictions on trade with Russia, and it is clearly affecting the global market. We are taking a look at a couple pairs' strange activity after sanctions and potential trade setups that go with them.

European Sanctions and Bond Yields

Sanctions by European governments have caused the ruble (Russian currency) to plunge amidst these restrictions placed on them. As a result, US stocks have risen, UK stocks have fallen, German stocks are up, USD is mostly down, and risk-on has returned for the most part.

Bond yields in the US are off the highs today as well suggesting that risk appetite is back. There is still uncertainty everywhere which makes risky plays questionable. However, if you were to be in the stock market or short USD today, you would have positive equity.

Strange Activity After Sanctions

GBP/USD

strange activity after sanctions

This pair gapped lower before immediately shooting higher back above support on the 1D. Major currencies are starting to look stronger than the USD right now which is concerning given the current circumstances.

NZD/USD

strange activity after sanctions

The kiwi jumped today after falling to support on the 1D. A weaker dollar today brought back a lot of risk-on sentiment in the forex market. The pair might come up to test the resistance level around 0.68637.

EUR/USD

strange activity after sanctions

The euro is doing the same thing on the same timeframe as it made a lower low gapping downward before buyers stepped back in. This is causing some bullishness for the time being, but this behavior is also concerning.

These jumps in price could be a trap for the retail investor as there is still weak momentum overall after risk-on behavior returned. I would wait to see what happens this week before making any big bets against the USD or going long on the stock market.

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