Geopolitical Concerns Roil Currency Markets

Dollar Braces for Fed Talks as Ukraine Concerns Rise

by Bogdan Giulvezan

After a brief Euro resurgence, the single currency failed to move above resistance against the US Dollar, and last week the pair erased all gains made a week prior. The markets are largely focused on tensions between Russia and Ukraine, especially because Sunday the U.S. State Department announced that it has ordered representatives’ family members to return home from Ukraine.

The other talking point of the week is the FOMC meeting, which may bring new clues regarding the rate hike. Some investors expect a possible hawkish move from the Fed, which would see rates hiked more aggressively than initially thought.

Week Ahead: Key Events

Monday at 2:45 pm GMT we take a look at the U.S. Manufacturing and Services sectors with the release of the respective PMIs (Purchasing Managers’ Index). These are leading indicators of economic health and can have a positive impact on the greenback if the actual reading exceeds expectations; however, the impact is not massive.

Tuesday’s highlights are the German IFO Business Climate survey scheduled at 9:00 am GMT and the U.S. Consumer Confidence survey that is set to be released at 3:00 pm GMT.

The main event of the week is the FOMC Statement that will be released Wednesday at 7:00 pm GMT and followed half an hour later by the usual press conference. If the Statement reveals changes to the monetary policy, beware of turbulence and increased volatility in the markets. The rate will be announced at the same time but the consensus is that it will remain unchanged.

Thursday at 1:30 pm GMT we take a look at the U.S. Advance GDP, which is the most important version of the three (Advance, Preliminary, and Final). A big change is expected: 5.3% from the previous 2.3%, thus the release can spark some interesting movement.

The week’s last event will affect the US Dollar as well: the Core PCE Price Index. The release is scheduled for Friday at 1:30 pm GMT and the index is rumored to be the Fed’s favorite inflation measure but it is somewhat overshadowed by the CPI which is released earlier.

Chart Analysis – EUR/USD

The recent bullish rally was short-lived and momentum faded once the pair reached the confluence zone formed by 1.1430 resistance and the upper border of the long-term diagonal channel. Currently, the pair is hovering just above 1.1300 and it is likely to descend even lower once (and if) the 50 days Moving Average is broken.

The RSI is moving south and the MACD is gearing up for a bearish cross, which are both bearish signs. The next probable destination is the support zone around 1.1200, which also coincides with the lower boundary of the diagonal channel. The week ahead is jam-packed with data, which will play a major role in the pair’s movement.