Finance

EUR/USD bears drill 1.1300 amid rush to risk-safety, focus on US PMIs, Russia-Ukraine jitters

  • EUR/USD drops for the fourth consecutive day as sellers poke one-week low.
  • Risk-aversion wave drowns stock futures, yields, tradition safe-haven status favor USD, gold.
  • Eurozone PMIs rallied to five-month high in February but absence of US traders, so our sentiment keep pair bears in control.
  • February’s preliminary activity numbers from US will join risk catalysts to direct intraday moves.

EUR/USD licks its wounds around the weekly low of 1.1288 during the four-day downtrend ahead of Tuesday’s European session. In doing so, the major currency pair relies on the US dollar’s safe-haven demand to please bears with mild gains as geopolitical headlines concerning Russia-Ukraine get tense.

Risk appetite soured late Monday after Russian President Vladimir Putin declared Donetsk and Luhansk in Eastern Ukraine as independent states and signed a decree “on friendship and cooperation”. Adding to the risk-off mood was Putin’s order to bring troops inside Eastern Ukrainian states, citing peacemaking efforts.

These actions magnified fears of an imminent Russian invasion of Ukraine, as previously warned by the West. As a result, the United Nations (UN) recently called an emergency meeting at the Secretary-General for Political Affairs, Rosemary A. DiCarlo, said that she regrets the order to deploy Russian troops into eastern Ukraine on a reported ‘peacekeeping mission’.

Adding to the market fears were Western leaders’ readiness to announce more sanctions for Russia. However, Moscow defends the latest military move as Russian UN Envoy said, “Allowing ‘a new bloodbath in the Donbas is something we do not intend to do.’” On the same line were comments from China’s UN Ambassador who said, “All parties concerned must exercise restraint, avoid any action that might fuel tensions.”

Additionally, China’s indirect warning to the US to stay from Taiwan issues and recently softer Fedspeak, as well as hawkish ECB wordings, also challenge the EUR/USD traders ahead of full markets.

To portray the mood, S&P 500 Futures dropped over 1.60% whereas the US 10-year Treasury yields declined seven basis points (bps) to 1.85% at the latest.

It should be noted that Eurozone activity numbers improved in February, validating the recently upbeat comments from the policymakers. However, today’s German IFO numbers may add support to the bullish arguments and can challenge EUR/USD sellers. Elsewhere, Federal Reserve Board Governor Michelle Bowman followed the tunes of Chicago Fed President Charles Evans and New York Federal Reserve Bank President John Williams on Monday while saying, “It is too soon to tell if the Fed should hike 25 or 50bps in March.”

To sum up, the risk-off mood and likely firmer US PMIs for February do suggest that the EUR/USD bears can keep the reins.

Read: US Markit PMIs Preview: Services sector has room for upside surprise, boosting the dollar

Technical analysis

The pair’s downside break of the 200-SMA and an upward sloping trend line from January 28 joins bearish MACD signals and descending RSI, not oversold, to keep EUR/USD sellers hopeful. However, a clear downside break of the 13-day-long support line near 1.1290 becomes necessary for the pair sellers before targeting the 61.8% Fibonacci retracement (Fibo.) of January-February upside, around 1.1265.

Alternatively, 200-SMA and the previous support line guards immediate recovery moves of the EUR/USD prices around 1.1345-50. Also challenging the pair of buyers is a descending trend line from January 11, near 1.1375, as well as the 1.1400.

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