The euro has reversed directions on Tuesday, ending a mini-slide that saw the currency drop over 1%. EUR/USD is trading at 1.1353 in the European session, up 0.41% on the day.
For those investors getting a headache from non-stop coverage of the Ukraine crisis on BBC or CNN, may I suggest an alternative. The euro has been acting as a barometer of the crisis, with the currency falling in recent days as a Russian invasion appeared imminent. However, the euro has recovered on Tuesday, as the crisis appears to have de-escalated slightly. This follows reports that some Russian troops have pulled back, which is certainly a step in the right direction. If the situation on the frozen ground continues to improve, I would expect the euro to gain more ground.
In the eurozone, there was positive news which helped boost the euro. Eurozone GDP rose by 0.3% q/q in Q4, and the labor market continues to strengthen as employment has surpassed the pre-pandemic level (February 2020). A tight labor market and rising inflation are putting pressure on the ECB to respond by raising interest rates. We have seen the dovish Christine Lagarde bend slightly and sound less dovish, although the markets are more hawkish in their pricing of a rate hike than the central bank.
German Economic Sentiment hits 6-month high
German ZEW Economic Sentiment for February rose to 54.3, up from 51.7 and its highest level in six months. This missed the consensus of 55.0 but still points to an optimistic outlook of the economy over the next six months. Importantly, the survey found that financial experts expect inflation to decline, although more than half say that the ECB will raise rates before September. The markets expect the ECB to raise rates by 40 basis points by the end of the year.
- EUR/USD faces resistance at 1.1452 and 1.1556
- There is support at 1.1287 and 1.1226
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