EUR/USD volatility will inflate? Ukraine war, GDP and CPI data coming soon


  • EUR/USD Volatility Could Inflate on Cascading Eurozone and US Key Data
  • The Russian-Ukrainian war continues to disrupt markets and strain international relations
  • Bearish EUR/USD Technical Outlook as Safe Haven Demand Continues to Inflate

The US dollar could rise sharply in the coming week as market-wide risk aversion grips investors amid the ongoing Russian-Ukrainian war and hawkish comments from the Fed. The risk-reducing Japanese yen and Swiss franc could also be pushed higher, although the greenback’s unparalleled liquidity could give it an edge over its counterparts.

Last week, markets fell on Fed comments implying a strong hawkish bias despite a host of volatility-inducing influences. On Monday, the S&P 500 fell, although it ended the day in the green. However, risk aversion seeped into all asset classes and saw the US Dollar, Swiss Franc and Japanese Yen close higher against most G-10 currencies.

S&P 500 Index – Daily Chart

Source: Trading View

Currencies linked to commodities such as the Swedish krona, the Norwegian krone, as well as the Australian and New Zealand dollars were particularly affected. Investors could see this momentum heightened over the coming week, but what could be the main market drivers?


Market reaction to French President Emmanuel Macron’s victory was somewhat mixed. European and regional stock markets did not show any noticeable jubilation the day after the announcement of the results. Traders were likely pricing in a win for the incumbent, and with that political risk removed, European equities are once again focusing on macro concerns (like the Fed).


Meanwhile in Ukraine, the strategic port city of Mariupol is now mainly under the control of Russian forces. The news now focuses on the Azovstal Metallurgical Plant. Reports indicate that the Kremlin may launch a new assault focused on seizing the industrial complex from Ukrainian forces.

Map showing the Russian advance in Ukraine

EUR/USD volatility will inflate?  Ukraine war, GDP and CPI data coming soon

Source: BBC News

On Monday, US Defense Secretary Lloyd Austin said he hoped to see a “weakened Russia” following Moscow’s actions against its Slavic neighbor. While Washington has expressed no intention of sending its own troops or NATO, policymakers have provided arms to kyiv and pledged to continue that support, much to Moscow’s chagrin.

For more geopolitical risk updates, follow me on Twitter @ZabelinDimitri.

Unsurprisingly, this was a source of great consternation between Russia and the United States, which were already in precarious conditions before the invasion. However, the conflict has also deepened the rift between Washington and Beijing, a relationship already fragile following the trade wars initiated by the Trump administration.

US officials have warned China that if it provides “material support” to Russia, sanctions could be imposed. At the Friends of Europe conference roundtable, US Assistant Secretary of State Wendy Sherman sent a clear message to policy makers in Beijing:

“They’ve seen what we’ve done in terms of sanctions, export controls, designations, vis-à-vis Russia, so that should give them an idea of ​​the menu we could choose from if indeed China were to provide material support”.

Washington offered a friendlier message toNew Delhi, stressing that it would work with the government to remove India’s dependence on Russian arms imports. Tensions between China and India over the disputed border along the so-called “Line of Actual Control” (LAC) in the Himalayan mountains have been a priority for Indian President Narenda Modi.

Securing military equipment in a reliable relationship is crucial not only in China-India relations, but also amid soaring global inflation and disrupted supply chains. These ongoing negotiations illustrate how, in the globalized world of the 21st century, it is very rare that actions in one corner of the world do not affect the other, impacting policies as well as markets.

READ MORE: How to Trade the Impact of Politics in Global Financial Markets


Upcoming eurozone CPI and GDP data could rattle the euro and exacerbate its losses against the US dollar if the results convince traders that the ECB may need to reconsider its rate hike plans. Last week, the euro plunged after central bank chair Christine Lagarde said monetary authorities may have to cut growth prospects due to fallout from the war in Ukraine.

Combined with hawkish comments from the Fed, this saw EUR/USD plunge as money markets increased their bets on ultra-aggressive rate hikes in 2022. US GDP and personal income/expenditure data will be released this week and could exacerbate the pair’s volatility if the numbers bolster the Fed’s hawkish outlook.

If US economic data surprises on the upside, the US dollar could be pushed by two narrative forces. The first is the assumption that strong economic data will reinforce and potentially even inflate the Fed’s already hawkish outlook. The second is linked to the first: the prospect of tighter credit conditions could sow panic in the markets and push investors into the arms of the greenback.


EUR/USD is currently trading at 1.0697, the lowest level since March 2020, in one of the biggest selloffs in financial market history across all asset classes. The pair’s decline began in January 2021, although a steeper bearish slope developed in May and saw the decline accelerate. On Monday, EUR/USD saw the biggest one-day decline since March 31, 2022.

EUR/USD – Daily Chart

EUR/USD volatility will inflate?  Ukraine war, GDP and CPI data coming soon

Source: Trading View

Although there seems to be a directional bias, a positive RSI divergence could indicate an upcoming reversal. However, it should be noted that a phenomenon observed in an indicator is not a guaranteed prediction of a specific outcome. EUR/USD’s downtrend may accelerate despite the divergence shown in the relative strength index.

Written by Dimitri Zabelin for DailyFX

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