Euro Sinks as Ukraine Pressures Rise
Resistance Holds: EUR/USD Back Inside the Diagonal Channel
by Bogdan Giulvezan
Europe’s single currency had a bumpy ride last week, as geopolitical tension increased and the Russia-Ukraine situation brought more turmoil. On the other hand, the US Dollar was boosted by soaring inflation that amplified the probability of a 50-basis point hike at the Fed March Meeting, and this combination of events put the EUR/USD bears in control.
ECB Chief Christine Lagarde followed up her recent hawkish comments by saying that if the central bank “acts too fast now, the recovery could be weaker”. As part of the initial comments, she pledged to “take the right steps at the right time”, and acknowledged the rising inflation. This took the Euro higher at the time, but the most recent comments counterbalanced the previous ones and apparently nullified their effects.
Key Events for the Week Ahead
Two important speeches are scheduled for Monday afternoon: at 4:00 pm GMT, FOMC Member Bullard will talk about monetary policy in a CNBC interview, and 15 minutes later, ECB President Lagarde will testify before the European Parliament. Any of these appearances can trigger massive volatility, so caution is advised.
Tuesday, February 15 at 1:30 pm GMT, the U.S. Producer Price Index comes out, showing changes in the price charged by producers for their goods and services. The expected reading is 0.5% (previous 0.2%) and the indicator has inflationary implications because usually a higher price charged by producers will be passed on to the consumer.
Possibly the most important release of the week is scheduled for Wednesday at 1:30 pm GMT: the U.S. Retail Sales and Core version of the same indicator. Sales made at retail levels represent the biggest part of the entire economic activity, so the release carries major implications for the USD. The forecast for the Core indicator is 1.0% (previous -2.3%) while the vanilla version is expected to show 1.8% (previous -1.9%).
Later in the day, at 7:00 pm GMT, the FOMC will release the Minutes of their latest Meeting, outlining the reasons that determined the latest rate vote. The document could also provide clues about the timing and the size of the next hike.
Technical Outlook – EUR/USD
After the sharp rally started around 1.1175 support, the pair found resistance in the 1.1430 – 1.1500 area and bounced lower, currently trading at 1.1320. The bears managed to take price back inside the diagonal channel and below the 50 days Moving Average, and this shows that the balance of power has shifted once again in their favour.
Given the latest price action and the fundamental scene which favours the US Dollar, it’s very likely that we will see a longer period of bearish movement for the pair. Note the double top created around 1.1500, which is another sign that price is headed lower.
All of the above suggests that the pair’s next destination is 1.1175 support but this scenario can change relatively quickly, depending on geopolitical and other fundamental factors.
