Euro falls, German business climate rebounds

The euro has fallen below the 1.13 level in Tuesday trade. EUR/USD is trading at 1.1266 in the North American session, down 0.55% on the day.

Risk appetite down, greenback up

The US dollar is higher against all the majors except for the yen, as risk sentiment has taken a tumble. Investors have the jitters as fears of a Russian invasion of Ukraine are at a fever pitch. The US and the Europeans have vowed a harsh economic response to an attack by Moscow, but it remains uncertain if the Russians are posturing and hoping for some gestures from the West or are they planning a military campaign against Ukraine.

Another factor weighing on risk appetite is the Federal Reserve meeting on Wednesday. Although the Fed has telegraphed its rate hike plans to the markets, there is still apprehension at the recent hawkish pivot by the Fed, as the upcoming series of rate hikes could dampen investor sentiment towards the equity markets. If geopolitical tensions and the spectre of Fed tightening isn’t enough to put investors in a sour mood, then just add a disappointing start to the earnings season to the mix.

German Services and Manufacturing PMIs outperformed this week, and there was more positive news on Tuesday, as the German Ifo Business Climate Index accelerated for the first time since last June. In the words of one analyst, “there is hope again”.  The January reading of 95.7 rose from 94.8 and beat the consensus of 94.7 points. The expectations component of the index showed strong improvement, which points to optimism in the business sector, with hopes that the current woes of Omicron restrictions and supply bottlenecks will ease over the next six months.

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 EUR/USD Technical

• In the European session, EUR/USD tested support at 1.1285. Below, there is support at 1.1226
• There is resistance at 1.1359 and 1.1418

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