The ongoing war in Ukraine will continue to drive sentiment, volatility and market direction. Commodity-linked forex like AUD and NZD are strongly bid as the parabolic rises in energy, metals and agricultural prices carries on. Meanwhile, the euro and other European currencies are getting hammered with huge concerns about the hit to economic activity. Several crosses are severely oversold and due a rebound, which is obviously tough to time in the current risk averse environment.  

Relative to the Fed especially, the Ukraine crisis leaves the ECB who meet on Thursday in a tough spot, given the trade, inflation and humanitarian impact. Upgraded inflation forecasts will be slightly meaningless as they will potentially show that the bank should be tightening policy. And this is before the upcoming increases in CPI that will push prices higher in the next few months. The battered euro broke 1.09 on Friday with big figures next support. The March 2020 low at 1.0637 is a pivotal line in the sand.

In contrast to the ECB, Fed Chair Powell recently signalled a 25bp rate hike was set to take place at its meeting next week. This vote of confidence in the US domestic economy saw a re-adjustment to the cut in Fed rate hikes for the year, which are now back to around six 25bp moves. The latest CPI print is sure to bolster this and dollar support going forward. The greenback’s s status as a safe haven currency is also helping immensely in the current sentiment.

Major risk events of the week

08 March 2022, Tuesday:

-German Industrial Production: The market median forecast is 0.5% in January after the decline of 0.3% previously. Supply chain bottlenecks remain a headwind. But business morale improved in January for the first time in seven months and an easing of restrictions has seen higher demand.  

10 March 2022, Thursday:

–ECB Meeting: In light of the Ukraine crisis, many ECB watchers think the bank will strike a cautious stance between staying on track for policy normalisation and keeping maximum flexibility. The already-announced rotation of its bond buying programmes is expected to continue. Money markets still price in 25bps of rate hikes by year end which could be under threat if President Lagarde strikes a very cautious tone.

–US CPI: Consensus expects February inflation to hold at 40-year highs at 7.8% for the headline and 6.4% for the core. Price pressures are broad based and include a tight job market and wage growth. Analysts say surging commodity and energy prices could push inflation up to 8% in the near term.

11 March 2022, Friday:

–UK GDP: Analysts expect a fall in output of 0.3% owing to Omicron disruptions. High Covid infections saw large workplace and school absences. But the poor start to 2022 may have been reversed already as the Covid wave subsided and consumer activity picked up.

–Canada Jobs: The economy lost more jobs than expected in January, posting its first decline since May 2021. But the Omicron-driven wave has peaked, and analysts forecast a quick rebound in the coming months. The jump in the unemployment rate was entirely due to temporary layoffs and this suggests a looming rebound.