It was a quiet start to the week, as, at time of writing, the euro traded at 1.1040 in the North American session. There were no tier-1 events out of the eurozone or the US, so we expected limited movement from EUR/USD for the remainder of the day.
The US dollar had a rough week, as it retreated against the majors, with the exception of the Japanese yen. EUR/USD climbed 1.28% last week and broke above the symbolic 1.10 line. The euro remains sensitive to developments in the Ukraine war.
Over the weekend, the Turkish foreign minister said that Russia and Ukraine are making progress towards an agreement to end the fighting, and the markets continue to price in an agreement, although there have not been any signal from the warring sides that a deal is near.
Russian President Putin said that bombs will keep falling on Ukraine even during negotiations, so we can expect the humanitarian disaster to get even worse. If there is an unexpected breakthrough and a ceasefire is reached, risk appetite will jump and the euro would likely rise sharply. There have also been discussions about a European oil embargo of Russian oil, but this will be very difficult to implement, given the significant dependency that Western Europe has on energy supplies from Russia.
Bundesbank says Ukraine war hurting German economy
The German central bank published its latest assessment of the German economy on Monday, and the Bank didn’t paint a pretty picture. The report said that the Ukraine conflict was having a negative effect and the Q2 recovery was expected to be much weaker than anticipated.
Higher energy prices were expected to dampen consumer consumption and industrial output, and inflation was rising due to higher prices for energy and wheat. As Germany is the bellwether of the eurozone, the report was certainly grim news for the bloc.
EUR/USD Technical
- 1.0923 was the first line of support, followed by 1.0794
- There was resistance at 1.1159 and 1.1266