EUR/USD plummets towards daily low at 1.1332 on reports that Russia could invade Ukraine next week

• UPDATE: Geopolitical developments sent the EUR/USD plunging towards 1.1332 on USD safe-haven bids.
• The shared currency ends the week lower, as the EUR/USD is down 0.48% in the week.
• German inflation came as expected, while US UoM Consumer Sentiment fell short of forecasts.
• ECB Lagarde’s pushed back against raising rates, while Fed’s Bullard eyes 1% increases by July 1st.

Update:

The EUR/USD plunges below 1.1400 as geopolitical tensions arise on the border of Ukraine and Russia. At press time, the EUR/USD is trading at 1.1360 but printed a daily low at 1.1332, just above the 50-day moving average (DMA) at 1.1325.

Around 18:30 GMT, according to a PBS NewsHour reporter, “the US believes that Russian President Vladimir Putin has decided to invade Ukraine and already communicated those plans to the Russian military. Two Biden administration officials said they expect the invasion to begin as soon as next week.”

The reporter continued “that US defense officials anticipate a “horrific, bloody campaign” that begins with two days of bombardment and electronic warfare, followed by an invasion, with the possible goal of regime change. Reportedly, the North Atlantic Council was briefed on the new intel today.”

According to Reuters, the US National Security Advisor Jake Sullivan said on Friday 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.” Furthermore added that “the US continues to see signs of escalation at the border,” he said, “that the US is ready to respond decisively should Russia invade.” Sullivan added,  “the response would include sanctions and changes to NATO force posture and, as a result, Russia’s power would be diminished, not enhanced, by an invasion.”

Sullivan urged all Americans to leave within the next 24-48 hours.

End of Update
 

The EUR/USD seesaws around the 1.1400 figure as European traders get ready for the weekend amid a risk-off market mood. At the time of writing, the EUR/USD is trading at 1.1401.

The Friday session witnessed the EUR/USD fluctuating up and down, with a lack of direction, after some ECB and Fed speaking. Also, during the European session, German inflation figures for January were reported. The German HICP and the CPI increased by 5.1% and 4.9%y/y,  both readings in line with expectations, causing a jump from the daily lows towards 1.1390, a 20-pip jump.

Meanwhile, the US economic docket is light in the North American session, with the University of Michigan Consumer Sentiment Index for February reported at 61.7, lower than the 67.5 estimated and trailed the January 67.2 figure. Concerning inflation expectations for 1 and 5 years, consumers expect it at 5.0% and 3.1%, respectively. 

The EUR/USD bounced on the release towards the 1.1410 area, retreating afterward, and through the remainder of the day, is seesawing around the 1.1400 figure.

Central bank divergence could favor the greenback vs. the euro

Now that the macroeconomic data is in the rearview mirror, some ECB and Fed speaking entertained EUR/USD traders in the last two days. 

On Thursday, ECB President Christine Lagarde said that raising rates would not solve any of the current problems and that they [ECB] don’t want to choke the recovery, and emphasized that she is confident inflation will fall back in the course of the year.

Across the pond, the St. Louis Fed President, James Bullard, on an interview with Bloomberg, said that he favors 1% of rate increases to the Federal Funds Rate (FFR) by July 1st. When asked about a 50 bps increase in the March meeting, he said he does not want to “prejudge that meeting.”

Therefore, the central bank policy divergence could witness some USD strength to the detriment of the EUR. It could be possible that the EUR/USD might be headed to the 1.1250-1.1350 area on a mean reversion reaction once Lagarde’s dovishness got back on the aforementioned headlines.