US Pr. Biden Eases Some Market Fears, RBNZ Flags Steeper Rate Path

JFD Brokers
7 min readFeb 23, 2022

Equities rebounded somewhat during the US session, closing off their lows, with the relief rolling into the Asian session today. Maybe this was because US President Joe Biden said that he is hopeful that the Russia-Ukraine conflict can be resolved without a war. Overnight, we also had an RBNZ decision, with the Bank hiking rates by 25bps as expected, but raising its rate-path projections.


The US dollar traded lower or unchanged against all but two of the other G10 currencies on Tuesday and during the Asian session Wednesday. It gained some ground only versus CHF and JPY, while it was found virtually unchanged against GBP and CAD. The greenback lost the most ground versus SEK, NOK, and NZD, in that order.

The relative weakness of the US dollar and the other safe havens, franc and yen, combined with some strength in the risk-linked Kiwi and Aussie, suggests that risk appetite may have improved at some point yesterday or today in Asia. Turning our gaze to the equity world, we see that most major EU indices were flat, as gains in auto and travel shares offset geopolitical fears. However, Wall Street was not able to also hold, and tumbled further.

Remember that, on Monday, Russian President Vladimir Putin ordered the deployment of troops to two breakaway regions in eastern Ukraine, which prompted investors to abandon risky assets and seek shelter to safe havens. US indices were able to pare some losses, closing off their session lows, after US President Joe Biden announced sanctions against Russia, but also said he is hopeful that a resolution can be found without war. He also added that the United States have no intention of fighting Russia.

The European Union and the UK also published a list of sanctions, while Germany froze a gas pipeline project. However, Biden’s hopes over a diplomatic solution allowed some market participants to reenter the stock market, and this is evident by the improvement in risk appetite during the Asian session today. Japan’s Nikkei 225 stayed closed in celebration of the Emperor’s Birthday.

Now, overnight, besides headlines surrounding the Russia-Ukraine conflict, we also had an RBNZ decision, with officials pushing the hike button for the third straight meeting, lifting interest rates by another 25bps, to 1%, as it was widely anticipated.

While such a move was fully priced in, the New Zealand dollar spiked higher as the Bank also steepened its rate-path projections. Policymakers now see the OCR hitting 3.35% by the end of 2024, much higher than the 2.6% predicted in November, with the level expected to be reached by the end of this year also being lifted, to 2.5% from 2.25%.

Now, as for our view, the Kiwi could continue drifting north, as the RBNZ stands among the most hawkish major central banks. However, bearing in mind that geopolitical tensions are far from vanished, we cannot rule out sudden setbacks in case there is another round of escalation. Remember that besides monetary policy, as a risk-linked currency, the Kiwi is also driven by developments surrounding the broader market sentiment.

For the same exact reason, we are reluctant to call for a long-lasting recovery in equities and other risk-linked assets. At any time, a full-scale invasion in Ukraine by Russia could result in another round of risk reduction, and thereby another round of selling in equities. At the same time, safe havens, like the Japanese yen and the Swiss franc may come under renewed buying interest.


NZD/USD traded higher overnight, breaking above yesterday’s peak of 0.6754, thereby confirming a forthcoming higher high. Overall, the rate remains above an upside support line drawn from the low of January 28th, and thus, we will still see a positive near-term picture.

We believe that the break above 0.6754 may have opened the way towards the next resistance zone of 0.6805, which stopped the pair from moving further north between January 18th and 20th. If the bulls are not willing to stop there, then we could see them climbing towards the 0.6850 zone, marked by an intraday swing low formed on January 14th. If that level is also broken, then we could experience extensions towards the peak of the day before, at 0.6890.

On the downside, we would like to see a clear dip below 0.6634 before we start examining whether the outlook has turned negative. This could confirm the break below the upside line drawn from the low of January 28th and may initially see scope for declines towards the 0.6590 territory, defined as a support by the lows of February 4th and 14th. Another dip, below 0.6590, could set the stage for larger downside extensions, perhaps towards the low of January 28th, at 0.6530.


EUR/JPY traded higher yesterday, after it hit support tat 129.46. However, the advance remained limited near the 130.75 zone, and thus, we can still draw a downside resistance line from the peak of February 10th. After all, the rate pulled back again after it hit the 130.75 level. Thus, we will hold a cautiously negative stance for now.

In order to assume the continuation of the current short-term trend, we would like to see a clear break below 129.36. This will confirm a forthcoming lower low and may initially target the low of February 1st, at 128.87, or the 128.35 territory, which acted as a floor between January 24th and 28th. If the bears are not willing to stop there either, then we could see them diving towards the 127.50 zone, marked by the low of December 20th.

In our view, the picture could turn positive after a break above the 131.12 barrier, marked by the high of February 18th. Such a move may confirm the break above the downside line taken from the high of February 10th, and could allow advances towards the peak of February 16th, at 131.90, or the inside swing low of February 10th. If neither barrier is able to stop the bulls, then we could see them climbing towards the peak of February 10th, at 133.15.


The calendar appears light today, with the only items on the agenda worth mentioning, being the final Eurozone CPIs for January, and the US’s API weekly report on crude oil inventories. As it is usually the case, the final Eurozone CPIs are expected to confirm their preliminary estimates, and thus, the euro is unlikely to move much, while no forecast is available for the API print.

As for the speakers, we will get to hear from BoE Governor Andrew Bailey, who will testify before Parliament on the latest inflation report. Given that 4 members wanted to hike rates by 50bps at the latest meeting, it will be interesting to see how likely such a move is for the upcoming gathering. ECB Vice President Luis de Guindos and ECB Executive member Frank Elderson will also step up to the rostrum. With the ECB opening the door to a 2022 hike at its latest meeting, we are eager to listen what they have to say on monetary policy.


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