EUR/USD hovering precariously above 1.1300 as traders monitor Russia/Ukraine/NATO tensions

EUR/USD is hovering just to the north of the 1.1300 level as ongoing concerns about the Eurozone’s economic vulnerability to a Russia/Ukraine war plus recent more dovish-leaning remarks from ECB policymakers weigh on the euro. EUR/USD was sent tumbling below 1.1400 last week as US press, citing US intelligence, reported that a Russian military incursion into Ukraine could take place as soon as this week, sparking fears about the Eurozone’s dependence on Russian gas imports. At current levels just under 1.1320, the pair is about 1.5% below last week’s highs and is roughly back in line with its pre-hawkish ECB meeting levels from February 3.

According to ING, the “break below 1.1400 in EUR/USD last week is likely signaling that the European Central Bank members’ recent attempt to cool down excessive hawkish speculation has… got to the euro”. “Another break lower – below 1.1300,” the bank continued, “could generate some further bearish momentum in EUR/USD that could extend to the 1.1200-1.1250 area should markets scale back bets on summer tightening by the ECB”. Indeed, Irish Central Bank head pushed back strongly against the idea of summer tightening on Sunday, labelling money market pricing for a June rate hike “unrealistic”.

Whilst geopolitical tensions between Russia/Ukraine/NATO will likely remain the dominant driver of the pair this week, there is also plenty of central bank speak and US and Eurozone data to keep tabs on. Lagarde will be speaking at 1615GMT on Monday, ahead of the release of the February German ZEW survey and second estimate of Q4 2021 Eurozone GDP growth on Tuesday. Also on Tuesday, US January Producer Price Inflation figures and the February New York Fed Manufacturing survey are scheduled for release, ahead of the US January Retail Sales report and minutes of the last Fed meeting on Wednesday.

On Thursday, the ECB will release its Economic Bulletin, ahead of the release of the February Philadelphia Fed Manufacturing survey and week initial jobless claims report out of the US. There will also be remarks James Bullard and Loretta Mester, though the more important Fed speak comes on Friday, with “core” Fed policymakers Christopher Waller, NY Fed President John Williams and Fed Vice Chair Lael Brainard all on the wires.