Euro volatile as Ukraine crisis in focus

The euro remains under pressure and was down close to 1% earlier in the day. EUR/USD has recovered and is currently trading at 1.1215, down 0.50%. There are no tier-1 events on today’s economic calendar.

Russian-Ukrainian talks to discuss cease-fire

The financial markets remain focused on Ukraine, where fierce battles continue to rage. Russian and Ukrainian officials are meeting on the Belarus-Ukraine border to discuss a cease-fire, and if there are any positive developments from the meeting, we could see risk appetite return and push the US dollar lower. In the meantime, the dollar remains elevated against the major currencies, as panicky investors have snapped up the safe-haven dollar. US Treasury yields have been on an upswing and the dollar index has risen 0.42% to 97.02.

US data showed some strength at the end of the week. The key release was Core PCE, which is the Fed’s preferred inflation indicator. The January reading accelerated to 5.2% YoY, up from 4.9% in December and above the consensus of 5.0%. This was the highest reading since July 1982, and puts additional pressure on the Fed to raise rates by 50 basis points at the March meeting. However, these are not normal times, as the uncertainty around the Ukraine crisis has decreased the likelihood of a 50 bps hike. According to CME’s Fedwatch, the likelihood of a 25-bps hike is 76% and a 50-bps is 24%.

There was more good news, as Personal income and spending beat expectations, as did UoM Consumer Sentiment. Durable Good Orders jumped 1.6% MoM in January, up from 1.2% in December and above the 0.8% forecast. Despite the strong finish to the week, the markets were clearly more focused on geopolitical developments, and the direction of the US dollar this week will largely depend on developments in the Ukraine crisis.

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EUR/USD Technical

• There is resistance at 1.1406 and 1.1538
• There is support at 1.1124, followed by 1.0974

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