Euro steady as Ukraine takes a breath

The euro is flat on Wednesday, as investors keep a close eye on developments on the Ukraine/Russia border.

The euro has been acting as a barometer of the crisis, and the currency’s lack of movement today reflects a lack of clarity on the part of the markets as to what will happen next. Russia says that it has moved some troops away from attack positions, but the US says there is no proof of this. President Biden took to the airwaves on Tuesday and warned the Russians of severe consequences if it attacked Ukraine while saying it was not too late to reach a diplomatic solution.

In the eurozone, a tight labor market and rising inflation are putting pressure on the ECB to respond by raising interest rates. We have seen Christine Lagarde bend slightly and sound less dovish, although she has not indicated that the ECB is planning any rate hikes prior to 2023. The markets remain more hawkish and expect the ECB to raise rates by 40 basis points by the end of the year.

US retail reports shine

In the US, a strong retail sales report for January provided something for investors to digest other than news from Ukraine. Retail Sales jumped 3.8% m/m, crushing the estimate of 2.0% and rebounding from the 2.5% decline in December. High inflation helped boost the retail sales numbers, but consumers are buying more goods and services as well.

Investors will now shift their attention to the Fed minutes, which will be released later today. With various FOMC  members sounding hawkish lately, there’s a strong chance that the minutes will reflect the hawkish pivot that includes Jerome Powell, who recently abandoned his stance that inflation was transitory. The markets have priced in six hikes and expect an aggressive Fed that has its work cut out for it on the inflation front.

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EUR/USD Technical

• EUR/USD faces resistance at 1.1452 and 1.1556
• There is support at 1.1287 and 1.1226

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