Putin sends “peacekeepers” into eastern Ukraine
Panicky investors? Risk-off market? The euro isn’t having any of it, as EUR/USD has jumped 0.38% on the day. The Ukraine crisis is escalating, but the euro received a boost from German Ifo Business Climate for February, which rose to 98.9 and beat expectations.
Hopes of a summit between US President Biden and Russian President Putin were dashed on Monday after Putin announced that he would recognise two breakaway regions in Ukraine controlled by pro-Russian separatists. This was quickly followed by Russia sending “peacekeepers” into those areas, which means Russian soldiers and weapons are being moved into eastern Ukraine. The US and UK responded by declaring they would slap Moscow with sanctions but did not release any details. The ball remains in Putin’s court – will he order an invasion of Ukraine?
The ratcheting of the crisis by Russia’s latest moves has sent the equity markets tumbling as panicky investors head for safety, but we’re not seeing the same response in the forex markets. The euro has been a reliable barometer of the level of the crisis until now, as Ukraine is geographically close to the eurozone and the bloc is completely dependent on Russian energy supplies. If the situation continues to deteriorate, we could see the euro lose ground.
The Federal Reserve, is widely expected to raise rates at its March meeting. The most likely scenario is a traditional hike of 25 basis points, but traders shouldn’t rule out a 50-bps move. On Monday, Fed Governor Michelle Bowman suggested she was open to a 50-bps move if it was warranted by the economic data. At the same time, if the Ukraine crisis deteriorates further, the Fed could decide that it’s not the right timing to raise rates in the middle of a massive geopolitical crisis and could hold off with a rate hike.
- EUR/USD is testing resistance at 1.1387. Above, there is resistance at 1.1449
- There is support at 1.1271 and 1.1217
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