After starting the week with gains, the euro has been on a nasty slide, which has continued on Friday. EUR/USD has dropped below the symbolic 1.10 level in the European session and is at its lowest level since June 2020.
Fire at Ukraine nuclear plant sends euro lower
The intensified fighting which is raging in Ukraine has taken its toll on the euro. The grim news of a fire at a Ukrainian nuclear plant caused by Russian shelling has resulted in safe haven flows which has boosted the US dollar. The eurozone is geographically close to the crisis and fears over shortages of gas and oil supplies due to a dependence on Russian supplies are weighing heavily on the currency. With risk appetite remaining low, the euro’s slide is likely to continue, absent news of a ceasefire in Ukraine or the announcement of an agreement in the Iran nuclear talks. The US dollar is also benefitting from the relentless surge in commodity prices, notably oil. The dollar index has risen to 98.14, up 0.36% on the day.
The ECB holds a policy meeting on March 10th and it appears likely that the central bank will not tighten policy, despite a signficant rise in eurozone CPI. There have been recent statements from ECB officials urging the ECB from undertaking any significant shift in policy while the Ukraine crisis continues. We can expect central banks, including the ECB, to be cautious and raise rates at a slower pace than had been expected before the Ukraine crisis.
The financial markets are understandably being driven by the war in Europe, but there are key events that should still be treated as market-movers. One of the most important events on the economic calendar is nonfarm payrolls. The consensus stands at a 475 thousand. Anything higher than that will practically cement a 25-basis point by the Fed, while a massive miss could make the Fed think twice about a March rate hike. Barring a huge surprise from the NFP, the Fed is likely to remain on track for a rate hike later this month.
- There is resistance at 1.1256 and 1.1406
- EUR/USD is testing a major support level at 1.1100. Below, there is support at 1.0842
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