February 24, 2022 15:12:13

The dollar is showing off its safe haven characteristics today, especially against the European majors. The risk backdrop is very grim and the flight to quality is in full effect as the yen, swissie and gold among other assets, outperform along with the greenback.

With commodities surging higher on supply disruption, policymakers will need to balance up ever rising prices with the risk of conflict and sanctions weighing on economic growth. In the meantime, risk appetite is highly defensive at present as investors go into capital preservation mode.

With direct exposure to Russia, far more than the US, the outlook for the eurozone is hugely uncertain. On balance, the Fed might be able to push cautiously ahead with policy tightening. Markets are currently pricing in a 50bp rate rise in mid-March at around 20%. But the risk of ECB hikes has been halved in total for the year from a week ago, with 25bps still priced. Sanctions against Russia will be in focus, with their effectiveness potentially hurting the eurozone economy as well.

EUR/USD falls to support zone

EUR/USD is experiencing its largest one-day decline since March 2020. Its February recovery at the start of the month from below 1.12 to the January high close at 1.1482 is now a distant memory. Prices failed at that resistance level, trading around the 100-day SMA for a while. This indicator has now fallen to 1.1396 and represents resistance above.

More recently, prices steadied around the 50-day SMA at 1.1328 but today’s sharp selloff has taken out the November low at 1.1186. There is a semblance of a double top reversal pattern in play, with the neckline at this level. If this is broken, the measured move is near to 1.07. The weekly close will be very important to see if this pick up in bearish momentum can be maintained. The near-term downside target is this year’s low at 1.1121 Beyond here is 1.1100//09 and 1.1097.