Putin’s nuclear announcement to revive rally

Wheat price ended the week in the red after plunging from its 14-year high. In the new week, developments of the war will likely revive the rally.

Russia-Ukraine crisis

The decline recorded late last week was a reaction to the investors’ assessment of the Russia-Ukraine conflict. Uncertainties over what to expect in eastern Europe, and how the developments will affect the commodity’s supply triggered a selloff.

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In the new week, wheat price will likely rebound sharply after President Putin ordered the country’s military to put the nuclear forces on “special alert”. While the announcement does not necessarily mean that Russia intends to use its nuclear weapons, it has heightened concerns over how far Putin is willing to go in his invasion on Ukraine.

Russia and Ukraine account for over a quarter of the global wheat supplies. As such, fears over an escalation of the ongoing war will probably revive the recent rallying in wheat price to multiyear highs.

In addition to the challenges experienced in shipping products across the Black Sea, the enacted sanctions have added a new layer of difficulties. The major wheat exporters from Russia have ties to the VTB Group. Notably, it is one of the banks under sanctions from the United States; an indication that the Russia-Ukraine crisis is bound to have far-reaching effects on the global breadbasket.

Wheat price technical outlook

On Thursday, wheat price rose to its highest level since August 2008 at $9.60 per bushel. At that level, it was in the overbought territory with an RSI of 84. Interestingly, it has since dropped by over 10% to close at 8.59 with an RSI of 47. Prior to the week’s rallying, the commodity remained below the crucial level of 8.50 since late November 2021.

On a four-hour chart, it is still above the 50-day EMA. However, it is trading slightly below the 25-day EMA. In the new week, 8.50 will be a support zone to look out for as the Russia-Ukraine crisis heightens concerns over supply disruption.

On the upside, it may rebound to around 9.00 as the bulls seek to retest the recent multi-year high. However, this bullish outlook will be invalidated by a move below the support at 8.28.