Markets

Ukraine Crisis: What it could mean for oil, gold, EURCHF and the DAX?

Written by Han Tan

Markets have been rocked by the latest twists and turns surrounding the Ukraine crisis.

Last weekend, the US warned that a Russian attack was imminent, only to be followed by reports that Russian forces are being pulled back from the border. At the time of writing, the latest headlines feature talk of a violation of cease-fire rules, and doubt being cast by the US and NATO as to whether Russian troops are indeed being withdrawn. The latest updates have prompted US stock futures to pull back, leaving the S&P 500 index cowering below its 200-day simple moving average for now.

All this speculation and uncertainty has left investors and traders on edge, leaving them wondering what could happen to various assets if this Ukraine crisis escalates?

Here are a few potential scenarios:

  1. Brent oil may top $100 At the start of the week, Brent oil, which is the benchmark used worldwide for oil prices, reached its highest levels since 2014. That climb was driven in part by the escalating tensions surrounding the Ukraine crisis, though Brent prices have since dropped slightly on signs that tensions are easing.As of 2020, Russia is the third largest oil-producing nation in the world (after the US and Saudi Arabia). And half of Russia’s oil exports go to Europe.
    If an invasion on Ukraine forces Europe to impose sanctions on Russian oil and disrupt supplies, that could make oil harder to find in a world that needs it as economies continue their post-pandemic reopening.​Scarcer oil supplies should boost prices, potentially sending Brent to $100 for the first time since 2014.
     
  2. Gold may reach $1900 Gold has had a fabulous February so far, boasting a month-to-date climb of almost 5%. Sure, a lot of that has been due to gold traditional role as an inflation hedge. However, the precious metal is also seen as a safe haven asset, meaning that investors lap gold up during times of heightened fear and uncertainty.
    From a technical perspective, spot gold formed a ‘golden cross’ last week, which is where its 50-day moving average (blue line) crosses above its 200-day moving average (purple line). Such a technical event typically points to more gains, and indeed spot gold has already broken above the downward trend line that had capped gains since spot gold posted its all-time high back in August 2020.Of course, an armed conflict involving major economies would send markets scurrying towards gold, potentially pushing up prices past that psychologically-important $1900 level last seen in June 2021.
     
  3. EURCHF may fall past 1.03 The Swiss Franc (CHF) is also widely regarded as a safe haven asset, in contrast to the euro currency which could be dragged lower by any worsening in the Ukraine crisis, given that Europe gets a third of its gas supplies through Ukraine.Hence, this contrast between Europe being negatively impacted by the Ukraine crisis, along with the Swiss Franc’s role as a safe haven, could send CHF towards its strongest levels against the euro since 2015.Already back in 24th January 2022, amid swirling concerns of the Ukraine crisis, EURCHF had dipped below that psychologically-important 1.03 level, only to have recovered since. Still, this currency pair remains sensitive to developments pertaining to the Ukraine crisis, and traders would have little qualms sending EURCHF to a new 7-year low if an armed conflict erupts.
     
  4. DAX could break decisively below 15,000 The DAX is the benchmark index for Germany’s stock market (this index gives you an idea how Germany’s stock market is doing overall).Already, the DAX is the worst-performing major stock index in Europe, dragged lower by fears surrounding the Ukraine crisis. So far this year, the DAX has fallen by 0.28% which is a bigger drop compared to France’s CAC (-0.21% year-to-date), and the Euro Stoxx 50 (-0.16% year-to-date). From a technical perspective, seeing as how the DAX’s 50-, 100-, and 200-day simple moving averages have converged, it appears that German stocks have been seized by fear, reluctant to move decisively one way or the other given the dark clouds that hang overhead.

    Yet, those who have been tracking this benchmark index would’ve noticed that, since March 2021, the DAX has been able to claw its way back above 15,000 every time it drops below that psychologically-important level. In market lingo, we would say that the 15,000 level has offered strong “support” for the DAX.

However, the DAX’s 15,000 support may come undone if the Ukraine crisis takes a major turn for the worse.

Overall, it appears there that the Ukraine crisis will not come to a conclusive end anytime soon, with EU and G7 leaders set to meet on the matter in the coming days.

In the meantime, market participants will have to keep watch and monitor how these various assets respond to the next stage of the ongoing Ukraine crisis.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

About the author

Han Tan

Tan Chung Han (Han Tan) joined the Exinity Group in 2019.
A highly experienced financial journalist and news presenter with an in-depth understanding of global markets, Han provides valuable insights into market news, as well as macroeconomic trends to clients and the international media.

Over the course of his career, Han has interviewed a wide range of key figures, ranging from top EU officials to Nobel Peace Prize winner, Muhammad Yunus. He is regularly quoted by leading media outlets including CNN, Reuters, Dow Jones and S&P Global Platts.

Han is already well-known to those who tune into Bloomberg TV Malaysia, BFM 89.9 and NTV7, and has a sterling reputation for his incisive analysis on currencies, stocks and commodity markets.

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