Russian Withdrawal Spurs Crude Oil Sell-off

Commodity and foreign currency markets reversed course overnight after reports surfaced that Russia was withdrawing its troops from the Ukraine border. This reported move drove up demand for higher risk assets, putting pressure on crude oil and gold while helping to support the Euro and British Pound. If the change of heart by Russia holds, then traders are likely to return their focus to this week’s key U.S. economic releases and the European Central Bank and Bank of England monetary policy meetings.

April crude oil futures sold off sharply after the news about Russia was reported. The news reversed yesterday spike to $105.22. The bearish-flip technical pattern suggests that yesterday’s move was short-covering rather than speculative buying. If selling pressure persists then look for a pull-back to at least Friday’s close at $102.59.

The flight back into higher-risk assets also triggered a sharp break in April Gold futures. Long-hedgers liquidated positions on the Russian news, erasing yesterday’s strong rally. The selling pressure subsided at a retracement zone at $1337.15 to $1332.94. This area should control the tone and direction of the market the rest of the day.

The inability to break gold beyond its initial downside thrust suggests traders are still a little nervous about the situation in the Ukraine. Taking out $1319.30 will turn the main trend to down on the daily chart, but this is not likely until peace breaks out in Ukraine. In addition, there may still be some buyers seeking protection against a possible break in the equity markets.

The EUR/USD finished higher on Monday but well off Friday’s high at 1.3824. Besides the easing of tensions in Ukraine, investors are shying away from either side of the market ahead of this week’s European Central Bank monetary policy meeting. Some investors are weighing on the downside in anticipation of another round of stimulus by the ECB. Rumors are circulating about a possible interest rate cut or the implementation of a negative interest rate policy on deposits.

A short-covering rally in the GDP/USD led to a higher close today. The limited trading action suggests investors are taking to the sidelines ahead of this week’s Bank of England policy meeting. Traders expect the BoE to leave interest rates unchanged as well as its monthly monetary stimulus.