Summary:

• markets nervous again as geopolitics adds to Trade Wars risks
• OIL surges to highest since 2014, breaks resistances
• Turkish lira crashes, US500 hovers above the key support

There’s no way to calm the markets these days. Just as the Trade Wars fear have started to abate slightly, new geopolitical risks have emerged. Trump’s response to a supposed chemical attack has been strong, a clear hint that he’s rising stakes with Russia. Here’s why Syria can have an outsized impact on the markets and how it could a serious impact on markets like OIL, USDTRY and US500.

• Trump opens up a new front with Russia while the trade spat with China hasn’t been resolved – this could be the biggest spike in geopolitical risk in months and risk premiums will rise
• sanctions and military actions may cause trade disruptions, especially in the case of oil 
• spiking oil price – Brent at $72 is the highest since late 2014 – higher oil will hit developed economies twice – first as they are net importers of energy (especially Japan and Europe) and second as higher inflation would encourage higher interest rates sooner rather than later
• defaults on emerging markets could spark flight to safety – Russia had already been forced to cancel bond auction and some major corporate bond issuers may face troubles there; Turkey was already at the brink of currency crisis and is exposed with high external debt – with ruble and lira tumbling and foreign capital dumping local debt we can face defaults in Russia and/or Turkey with possible spillovers into other markets
• crisis in Turkey could undermine NATO cooperation and re-open an immigration crisis in Europe 
• the key stock market indices just hang above the key supports (see US500 below) – breaking them could open up significant downside for the markets

OIL

Oil continues to push higher within a long-term upwards channel. However, a $70 mark has been a resistance this year and with elevated positioning it was hard to crack and caused a pullback twice. This week’s candle could be a game-changer here. A clear break above opens up an uncharted territory as there are no resistances in sight. Then again the price is at an upper limit of a channel so a break higher here would also be required to finally fend off bears. 

Oil has broken above $70, upper limit of the channel is the last hurdle. Source: xStation5  

USDTRY

The Turkish lira has been under an immense pressure lately as the country deals with high inflation, current account deficit and overheating economy. Spiraling depreciation reignites inflation (especially with higher oil prices) and increases a problem of external debt. So even without geopolitics the TRY is in trouble as the central bank (next meeting April 25) is under market pressure  to increase rates but under political pressure not to do so. 4.20 is a resistance on this market at present but it doesn’t look to strong. Even if the lira recovers, a 3.95-4 range looks like a strong support. 

USDTRY is powering higher as capital flights from Turkey and Russia. Source: xStation5 

US500

The bulls on this market still hope for a double bottom but a relative weakness and a proximity of support reminds us that an alternative scenario of breaking lower is still possible. Do notice that volumes are still higher on “down” candles – a sign that bears are in no position to give up.

US500 is still in a hope of a double bottom. Source: xStation5