As a potential support, 1.1305 is available below the current lows.
Russia and central bank sentiments drive the forces.
EUR/USD has lost its initial gains as risk-aversion slows down and major Asian indexes are printing in the red. The broadest index of Asia-Pacific shares by EUSCI outside Japan fell 0.2% while the Nikkei in Japan lost 2.5%. After correcting a large portion of Friday's selloff to a high at 1.1369's, the euro is now flat at 1.1353 compared to the US dollar.
It is now jittery as a result of alarmingly high US inflation readings and the risks of a Russian invasion. In what is widely considered a desperate attempt to stop a Russian invasion, US President Joe Biden spoke with Vladimir Putin by telephone for one hour on Saturday. According to a senior US official briefing reporters, the call did not bring about any "substantial change" in the situation, although Russia and the US have agreed to remain engaged over the next few days. According to the official, Russia may still decide to take military action.
There is speculation that the Federal Reserve may raise rates by 50 basis points in March. Also, there has been talk of an emergency inter-meeting increase. The Fed Board closed meeting on Monday was a contributing factor to the increase. However, the event is routine.
But not all Fed members sing from the same hymn sheet. In a Sunday interview, Mary Daly, San Francisco Fed President, downplayed the need to make a half-point change. James Bullard from St. Louis Fed advocated for a 50bps increase at the March meeting. Daly suggested that being too aggressive and rapid in implementing policy can be counterproductive. James Bullard, Fed President, will be on the scene later Monday due to his recent calls for a more aggressive Fed stance. This would signify 100 basis points of tightening before June.
Minutes of the US FOMC / Retail Sales in Focus
The Federal Open Market Committee meeting minutes are expected to be released. Traders will also be interested in discussions about near-term policies. Analysts at TD Securities said that the market will pay particular attention to plans for balance-sheet normalization steps following the Jan release of normalization "principles".
The analysts said that although the minutes may seem old, they are still relevant given recent macro data strength. The markets will then focus on US Retail Sales, where an improvement in December's sharp fall could be favorable to the US dollar.