EUR/USD LOSES THE GRIP AND CHALLENGES 1.1300 AHEAD OF ECB

14 February 2022, 11:41

• EUR/USD revisits the 1.1300 region on Monday.
• The dollar remains bid amidst persistent risk aversion.
• US 10y yields trade on the defensive near the 1.90% mark.

The single currency sheds further ground and forces EUR/USD to put the 1.1300 support level to the test on Monday’s European morning.

EUR/USD looks to geopolitics, risk aversion

EUR/USD retreats for the second session in a row and extends further the rejection from last week’s tops near 1.1500 the figure soon after the release of US inflation figures for the month of January (February 10).

In addition, the focus of attention remains on the short end of the yield curve in both the US and German cash markets as important drivers of the pair's price action, particularly folllowing the last FOMC and ECB events. In the meantime, German 10y Bund yields keep correcting lower following recent tops, widening at the same time the spread differential vs. its American peer, which remains another source of weakness for the pair at the beginning of the week.

Nothing scheduled data wise on both sides of the Atlantic, although the speech by Chair Lagarde later in the old continent should garner some attention.

What to look for around EUR

EUR/USD could not sustain the post-US CPI raise to the vicinity of the 1.1500 barrier, sparking a corrective move to the boundaries of 1.1300 on the back of the renewed and quite strong bias towards the US dollar. Despite the ongoing knee-jerk, the improvement in the pair’s outlook appears underpinned by fresh speculation of a potential interest rate hike by the ECB at some point by year end, higher German yields, persevering elevated inflation and a decent pace of the economic activity and other key fundamentals in the region

Key events in the euro area this week: ECB Lagarde (Monday) – Advanced EMU Q4 GDP, EMU/Germany ZEW Economic Sentiment (Tuesday) – EMU Industrial Production (Wednesday) – Flash EMU Consumer Confidence (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is retreating 0.27% at 1.1314 and faces the next up barrier at 1.1491 (200-week SMA) seconded by 1.1494 (2022 high Feb.10) and finally 1.1656 (200-day SMA). On the other hand, a break below 1.1303 (weekly low Feb.14) would target 1.1186 (monthly low Nov.24 2021) en route to 1.1121 (2022 low Jan.28).

GBP/USD: FURTHER CONSOLIDATION REMAINS ON THE CARDS – UOB

14 February 2022, 08:26

In opinion of FX Strategists at UOB Group, GBP/USD is still seen navigating within the 1.3450-1.3645 range in the short-term horizon.

Key Quotes

24-hour view: “Last Friday, we held the view that GBP “could weaken but a clear break of 1.3500 is unlikely”. GBP subsequently dropped to 1.3515, rebounded quickly to 1.3609 before easing off to close unchanged at 1.3461. The choppy price actions have resulted in a mixed outlook and GBP is likely to trade sideways for today, expected to be between 1.3520 and 1.3600.”

Next 1-3 weeks: “Our view from last Friday (11 Feb, spot at 1.3550) still stands. As highlighted, GBP is likely trade between 1.3450 and 1.3645 for now.”

EUR/JPY SET FOR WORST DAY SINCE MARCH 2020 ON REPORTS RUSSIAN COULD INVADE UKRAINE NEXT WEEK

11 February 2022, 21:18

• EUR/JPY has been under intense selling pressure in recent trade as reports suggest Russia may invade Ukraine next week.
• The pair has slumped all the way to the 130.70 area and is down about 1.4% on the day.
• That would mark its worst one-day performance since March 2020.

EUR/JPY slumped to session lows well below the 131.00 level in recent trade as market participants dumped their euros and piled into the yen on reports that Russia is set to invade Ukraine as soon as next week. The PBS NewsHour reporter who broke the news on Twitter said that Russian President Vladimir Putin had already decided to invade and communicated plans to the Russian military. In the immediate aftermath of the reports breaking, news emerged that the UK and EU will be evacuating embassy staff and are urging citizens to leave as soon as possible. The US is also reported to be looking at reducing embassy staff and removing its observers to the OSCE mission to Ukraine.

EUR/JPY now trades in the 130.70 area, down some 1.4% on the day, putting the pair on course for its worst one-day performance since March 2020. The euro is being dumped given its economic vulnerability to a significant reduction in Russian gas imports, upon which the continent is reliant for its energy consumption. The yen is being bought as a result of its typical safe-haven status. EUR/JPY may well dip back to pre-hawkish ECB meeting levels under 130.00 next week and, if war begins, could head towards Q4 2021 lows in the 127.50 regions.