- EUR/USD is trading much calmer this Friday near the 1.1200 level after Thursday’s massive 200 pip intraday rally.
- Risk appetite has been at the forefront on Friday, helping push EUR/USD to session highs at 1.1230.
- As geopolitical uncertainty remains elevated and clouds the Fed/ECB policy outlook, EUR/USD may remain contained within the 1.1100-1.1300 range.
After the extreme volatility on Thursday that caused the EUR/USD fell as much as 200 pips intraday from above 1.1300 to multi-month lows near 1.1100 after currency markets were rattled by Russia’s decision to launch a full-scale invasion of Ukraine, trading has calmed down. The pair spent Friday’s session turning around the 1.1200 level as forex market participants come to terms with the largest war in terms of scale in Europe since the end of World War II. The pair is currently trading with gains of around 0.3% at the 1.1220 area, having seen some strength in recent trading along with improving risk appetite as Russia signaled it was ready for talks with Ukraine.
The Kremlin said it was ready to send a delegation to Minsk, appearing to have revived some minor hopes that a diplomatic solution could stop hostilities. Such hopes are likely to be unfounded in the context of further intensifying fighting in Ukraine, as Russian forces struggle to advance against reportedly highly motivated Ukrainian resistance. That suggests the scope for a lasting EUR/USD rally may be limited for now, especially as the US and EU prepare new sanctions against Russia.
Russian President Vladimir Putin and Foreign Minister Lavrov will see their European assets in the EU frozen, reports suggest, though for now, the Western response is still seen as soft given that there are still no targeted sanctions on the EU. Russian energy exports. Another consideration for EUR/USD traders is the implication the war in Ukraine will have on the ECB and Fed’s policy outlook. So far, the market’s view of the Fed is that a 50 percent hike is now less likely. bp in March. But there seems to be more confusion about how the events will affect the ECB.
The ECB’s chief economist, Philip Lane, outlined several scenarios in public comments on Friday, and in all of them he sees the conflict weakening eurozone growth and pushing inflation higher. “The ECB seems likely to revise its inflation forecast upwards,” said one analyst, concluding that “we can still have an accelerated reduction, as long as the conflict remains within Ukraine”. For now, as uncertainty remains high on multiple fronts, EUR/USD may continue to trade in the 1.1100-1.1300 range.
Additional technical levels
Source: Fx Street
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