RUSSIA READY TO OPEN FIRE ON FOREIGN SHIPS THAT ILLEGALLY ENTER TERRITORIAL WATERS – IFAX

14 February 2022, 13:03

The Interfax news agency reported on Monday that a senior Russian military official said Russia was ready to open fire on foreign ships and submarines that illegally enter its territorial waters, per Reuters.

The official further added that any decisions to open fire on foreign vessels would however only be taken at the highest level.

Market reaction

Markets remain risk-averse during the European trading hours following these remarks. As of writing, US stocks futures were down between 0.8% and 1.1%, Germany's DAX 30 was losing 2.8%.

AUD/USD BOUNCES OFF ONE-WEEK LOW, STILL DEEP IN THE RED NEAR 0.7100 MARK

14 February 2022, 12:55

• A combination of factors dragged AUD/USD lower for the third successive day on Monday.
• Bets for a 50 bps Fed rate hike in March underpinned the buck amid geopolitical tensions.
• The anti-risk flow contributed to the bearish pressure around the perceived riskier aussie.

The AUD/USD pair remained depressed through the first half of the European session and was last seen trading around the 0.7100 mark, just a few pips above the one-week low.

The pair extended last week's rejection slide from the vicinity of mid-0.7200s, or the 100-day SMA hurdle and continued losing ground for the third successive day on Monday. The US dollar remained well supported by the prospects for a faster policy tightening by the Fed. This, along with the risk-off impulse in the markets, weighed on the perceived riskier aussie and exerted pressure on the AUD/USD pair.

The markets seem convinced that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation and have been pricing in a 50 bps rate hike in March. The bets were boosted further after data released last Thursday showed that the headline US CPI accelerated to the highest level since February 1982 during the first month of 2022. Adding to this, the core CPI climbed to 6.0% from a year ago.

Apart from this, worries over an imminent Russian invasion of Ukraine took its toll on the global risk sentiment and further benefitted the greenback's relative safe-haven status. This was seen as another factor that dragged the AUD/USD pair back below the 0.7100 mark. The downtick, however, lacked any follow-through, warranting some caution for aggressive bearish traders and before positioning for any further losses.

In the absence of any major market-moving economic releases, traders might take cues from St. Louis Fed President James Bullard's appearance later during the North American session. It is worth recalling that Bullard called for 100 bps rate hikes over the next three FOMC policy meetings and hence, his remarks, along with the US bond yields, will influence the USD and provide some impetus to the AUD/USD pair.

Apart from this, geopolitical developments and the broader market risk sentiment should allow traders to grab some short-term opportunities around the AUD/USD pair. The focus would then shift to the RBA monetary policy meeting minutes, due for release during the Asian session on Tuesday.

FED'S GEORGE: FED SHOULD WEIGH ASSET SALES TO CURB INFLATION – WSJ

14 February 2022, 12:45

In an interview with the Wall Street Journal on Monday, Esther George, President of the Federal Reserve Bank of Kansas City, argued that the Fed should weigh asset sales to curb inflation, as reported by Reuters.

Geroge further added that they should remove stimulus in a systematic way.

Market reaction

These comments don't seem to be having a significant impact on the dollar's performance against its major rivals. As of writing, the US Dollar Index was rising 0.23% on a daily basis at 96.25.

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).

USD/CAD JUMPS BACK CLOSER TO 1.2800 MARK AMID RETREATING OIL PRICES, STRONGER USD

14 February 2022, 12:11

• A combination of supporting factors pushed USD/CAD to over a one-week high on Monday.
• Retreating oil prices undermined the loonie and extended some support amid stronger USD.
• Hawkish Fed expectations, the risk-off impulse continued benefitting the safe-haven buck.

The USD/CAD pair quickly retreated a few pips from over one-week high touched in the last hour and was last seen trading around the 1.2765 region, still up over 0.60% for the day.

The pair caught fresh bids during the early European session and broke out its intraday consolidation phase, with bulls now looking to build on last week's rebound from the monthly low. Despite the risk of a further escalation in the conflict between Russia and the West over Ukraine, crude oil prices pulled back from a more than seven-year high touched earlier this Monday. This, in turn, undermined the commodity-linked loonie and provided a goodish lift to the USD/CAD pair amid fresh US dollar buying.

The greenback remained well supported by growing acceptance that the Fed will tighten its monetary policy at a faster pace than anticipated to combat stubbornly high inflation. In fact, the markets have been pricing in the possibility of a 50 bps Fed rate hike move in March. The bets were boosted further after data released last Thursday showed that the headline CPI reached the highest level since February 1982 and the core CPI, which excludes food and energy prices, climbed 6.0% from a year ago.

Apart from this, the risk-off impulse – as depicted by a sell-off across the equity markets – further benefitted the greenback's safe-haven status. This was seen as another factor that contributed to the USD/CAD pair's strong intraday positive move. The global risk sentiment took a hit after US National Security Advisor Jake Sullivan warned on Sunday that “we are in the window where a Russian invasion of Ukraine could begin at any time and could happen during the Beijing winter Olympics.”

It, however, remains to be seen if bulls are able to capitalize on the move or the USD/CAD pair continues with its break through the 1.2800 mark amid absent economic releases from the US or Canada. Hence, the market focus will remain on geopolitical developments, which will influence oil price dynamics. Apart from this, traders will take cues from the broader market risk sentiment. This, along with the US bond yields, will drive the USD demand and provide some impetus to the USD/CAD pair.