EUR/USD Sets Fresh Nearly 2 Year Lows, As Markets Monitor the Russia-Ukraine Conflict
Ukraine News
The war in Ukraine has entered its seventh day and Russia's offensive seems to have been intensifying, keeping market on edge.
The two sides had held negotiations on Monday, which did not produce any major breakthrough. Russian news agency TASS reported yesterday that Ukraine and Russia were expected to hold another round of negotiations today [2]. Interfax however today, cites source saying that this is more likely to happen at the end of the week [2].
Over the last few days, we are seeing an increasing number of western companies cutting ties with Russia, with ExxonMobil being the latest energy firm to do so. It announced that it will discontinue its operation of the Shakalin-1 project in Russia and will make no new investments in the country. [3]
Powell Testimony
The Fed Chair testifies today in front of the Financial Services of the U.S. House of Representatives and on Thursday, he returns to the Capitol, to testify before the Banking, Housing, and Urban Affairs Committee of the Senate.
Investors will be looking for more insights into the Fed's monetary tightening intentions, ahead of the March 16 monetary policy decision. The central bank has pointed to March lift-off, but markets have toned down previous aggressive bets for a 50 basis point hike.
At the time of writing, CME's FedWatch Tool projects a 25 basis point increase this month and up to five hikes by the end of the year. [4]
From the economic calendar, Eurozone, CPI Inflation figures for February are due shortly (10:00). Final CPI in January had increased 5.1% year-over-year.
EUR/USD
Despite these less aggressive expectations, the US Dollar strengthens today due to risk-off mood around Ukraine, sending the pair to its lowest level since May 2020, while running its fourth straight losing week. This makes it vulnerable to 1.1000, but it may be early for a larger decline beyond that level and towards 1.0869.
From a technical prospective the drop is overextended and the common currency may find the opportunity to react back towards mid-1.1100s, but sustained improvement in sentiment will be likely needed for a larger recovery towards 1.1280-1.1300.
In any case, caution is needed as volatility is highs and apart from any geopolitical news, we also expect Mr Powell's testimony.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 02 Mar 2022 https://tass.com/politics/1414163 | |
| Retrieved 02 Mar 2022 https://interfax.com/newsroom/top-stories/75022/ | |
| Retrieved 25 Jun 2022 https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html# |
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