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| EUR/USD 1 Hr Chart |
The one-week implied volatility of the EUR/USD has reached its highest level since the middle of December, following reports last Friday that US intelligence suggested Russia could invade Ukraine this week. If tensions between the two countries continue to rise, the single currency may be vulnerable to a rapid selloff.
Markets dislike uncertainty, and the prospect of an invasion destabilising European politics and economic dynamics could cause traders to flee the eurozone. Crude oil prices are also rising as a result of supply disruption concerns between the West and Russia, which is also a key player in OPEC+. Higher oil prices could also pose a problem for the European Central Bank (ECB).
Since the ECB's February monetary policy announcement, ECB President Christine Lagarde has spent the majority of her time downplaying increasingly hawkish expectations. Earlier this month, this resulted in a brief 2-day surge in the Euro. Even one of the more dovish central banks has begun to acknowledge the global inflationary trend.
Nonetheless, the ECB President warned that if the central bank "acts too quickly now, the recovery may be weaker." She may make similar remarks during a European Parliament debate on Monday. This could further erode the Euro. Traders will also be looking at Eurozone GDP and industrial production figures. This week's speakers will also include ECB Chief Economist Philip Lane.
Traders should also keep an eye out for incoming FOMC minutes, which may echo the central bank's increasingly hawkish rhetoric. This could destabilise market sentiment and give the US Dollar a boost, leaving the Euro vulnerable. Loretta Mester, president of the Federal Reserve Bank of Cleveland, and James Bullard, president of the Federal Reserve Bank of St. Louis, will also speak.
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