Happy Valentine’s Day. All eyes are on Ukraine. On Friday, U.S. National security adviser Jake Sullivan said that the “U.S. is prepared for a potential military action in the coming months”. He also strongly advised that American citizens get out of Ukraine. “Move out by air or rail or road as rapidly as possible.” These comments sent equities lower, U.S. yields lower and the dollar lost ground. CPI released last week surprised to the upside, again! YOY inflation printed 7.5% which is a 40-year high. On that news, U.S. yields rallied, with the 10-year moving as high as 2.04% (a two year high) before falling to 1.94%. Oil prices jumped to $95.00/bbl.

This week, economic data includes PPI (Tuesday), Advanced retail sales (Tuesday) and Industrial productions and utilization (Wednesday). These numbers will not be as important, with the Ukrainian situation being the underlying news.

Risk Management through a crisis:

Currency markets are choppy and without direction. When a major global event is expected, the market will not necessarily follow a smooth path. There will likely be large swings in rates as liquidity evaporates. This is a time when “leaving” an order becomes an important risk management tool. Review recent highs and lows and place your buy and sells at or beyond those levels. You may also leave an order at a level that may seem to have no probability to hit, but they don’t cost anything and with this uncertainty, you might be surprised with a fill. Don’t forget to cancel them if the market is no longer chopping around.

EUR (1.1340): The euro rallied last week, printing 1.1495. It fell quickly after resistance at 1.1500 held. The rally was most likely a short-covering and “squaring” of positions ahead of a weekend of uncertainty. We should expect this type of movement while the world waits for the outcome of the Ukraine situation. Support for the Eur 1.1320, 1.1250 and 1.1130.

GBP (1.3560): Like the single-currency, sterling rallied into the weekend and has given half of that back to begin this week. The currency has gained against the euro, but again, there is no new ground being reached. Resistance is at 1.3600 and 1.3640. Support at 1.3500 and 1.3350.

JPY (115.45): USD/JPY has traded 116.35 twice in the past week. We can call that a response to the rising U.S. yields. Of course, they fell at the end of last week and so did USD/JPY. This week, and in the weeks ahead, this currency pair will be more sensitive to interest rates even more than typical. Resistance at 116.35 and then 118.00. Support at 113.80 and 113.50. The latter is a pivot point, which, if the dollar closes below, it will most likely target the 110.00.

CAD (1.2735): We have talked about the correlation between oil and CAD enough times that it’s strange to have to say that the correlation has broken down. Oil is dealing at $94.00/bbl, and USD/CAD has rallied. Short-term, we expect this CAD weakness, dollar strength, to continue to at least 1.2950. Global stress and rising U.S. interest rates, along with the truck drivers strike does not bode well for the currency.

MXN (20.5000): The Mexican central bank raised rates 0.5% to 6% on February 10th! This was expected and the currency did absolutely nothing. We spoke a bit about using orders, and this currency is a good example of why. The peso may rise or fall quickly, and this is where leaving an order to buy MXN above 21.50 or 22.20 is a great idea.

CNY (1.3650): While we enjoy the Olympics in Beijing, there is pressure building for the PBOC to halt keeping their currency as tightly controlled as the last couple weeks. The lack of movement will be followed by a reset and that may be a move 1.4000. Below the current level (1.3650) the support areas of 1.3200 /1.3000 will be key to keeping the CNH from strengthening quicker than the PBOC would like.