Euro extends losses on Ukraine crisis

The euro has started the week in negative territory, after sharp losses on Friday. EUR/USD is struggling to remain above the 1.13 level.

Last ditch efforts to avert war

The crisis on the Ukraine/Russia border has reached a fever pitch, with the US saying it expects an invasion as early as Wednesday. There are some signals that a diplomatic solution can be found, but a Russian invasion remains a very real possibility. German Chancellor Olaf Scholz is in Kyiv and will travel to Moscow for a last-ditch effort to prevent a Russian attack, which would have a massive impact on the financial markets.

The US dollar has taken advantage, posting broad gains against the majors. The euro fell close to 1% last week, mostly on jitters over fears of a Russian invasion. I expect the currency to remain under pressure as the crisis continues.

In the US, St. Louis Federal Reserve President James Bullard said on Monday that the Fed must move more rapidly in raising rates. Bullard admitted that the Fed was “surprised to the upside on inflation”.  Bullard, who is one of the most hawkish voting members, said last week that the Fed should raise rates by a full percentage point by July. The markets are leaning towards a 50 basis point hike in March, with a 61% likelihood, according to CME’s FedWatch. Bullard added that he was especially concerned with the surge in inflation since it was broad-based and was not showing any signs of easing.

There are other voices in the Fed, of course, and investors will be looking for guidance from the Fed on the course of rate hikes this year. The Fed minutes, which will be released Wednesday, could provide some insights into the Fed’s plans.

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EUR/USD Technical

• 1.1437, a monthly resistance line, is under pressure. Above, there is resistance at 1.1577
• There is support at 1.1233 and 1.1014

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