• The risk of Russia invading Ukraine weighs on Euro and favors the safe haven US dollar.
• The soaring inflation reading of last week also weighs on the market sentiment, favoring the safe haven – USD.
• European Central Bank’s (ECB) Olli Rehn warned that overreaction to inflation by the central bank could stem the economic growth.

The Safe haven US dollar rose against the riskier ones like Euro which struggled for traction on Monday, as market edge about the prospect of war in Europe and with the alarmingly high US inflation readings last week.

US president Joe Biden and Russian president Vladimir Putin talked by phone for an hour on Saturday which is largely seen as a last-ditch effort to defend from Russian invasion of Ukraine. But Neither side said there had been any breakthroughs. A senior Biden administration official said the call was professional and substantive, but that there was no fundamental change. The senior Biden administration official said it was unclear whether Putin was committed to diplomacy even as he agreed to stay in touch with Biden. The official also said ”Russia may decide to proceed with military action anyway.”

This recent news adds risk in the market which was already evident in markets’ volatile response to hotter-than-expected U.S. inflation data last week, which rushed the market to bets on the Federal Reserve to lift rates more than 160 basis points before the end of the year.

Analysts at Westpac said “With Fed hike expectations surging again and geopolitical tensions in Ukraine escalating dramatically the dollar index should be back on the front foot again.”

On the other hand, On Saturday, European Central Bank’s (ECB) Governing Council Member Olli Rehn warned in an interview that overreaction to inflation by the central bank could stem the economic growth. He said “If we reacted strongly to inflation in the short term, we would probably cause economic growth to stop,” “It’s better to look beyond short-term inflation and look at what inflation is in 2023, 2024.” “We will have time to react in the March meeting and in later meetings if it looks like the situation is markedly different than it now appears.”

EUR/USD 4 Hour Chart:

Support: 1.1307 (S1), 1.1268 (S2), 1.1207 (S3).

Resistance: 1.1408 (R1), 1.1469 (R2), 1.1508 (R3).

The Anxious start of the trading week due to soaring inflation and the risks of a Russia invasion of Ukraine favors the safe haven asset US dollar against the Riskier asset – Euro. We expect a bearish trend for EUR/USD.