It clear that FX is just waiting to see how the geo-political crisis in Ukraine will play out. It’s been a long time since I have seen set ups like this were fundamental macro news is being
drowned out by newswire drops. What happen last Thursday is a fairly clear playbook for how initial reactions to an invasion
may play out.
This is a chart of the continuous Crude contract and EUR/USD reacting to this newswire drop: RTRS: RUSSIA-BACKED REBELS IN EASTERN UKRAINE SAY UKRAINE GOVT FORCES HAVE SHELLED THEIR TERRITORY WITH MORTARS – RIA
(source: Refinitiv)
How this week will transpire is realistically – guess work. But we can prepare for it and be ready to move on both negative and positive news from this terrible situation.
The Fundamentals
We should still dive into some of the macro fundamentals and there is none bigger than the positioning ahead of the March Fed meeting.
St. Louis Fed president Jamie Bullard continued his ‘crusade’ on inflation – making yet another public appearance advocating to front-loaded policy response to inflation being at a 40 year high. His view is for a 100 basis points of rate hikes by June, with balance sheet reductions commencing in From April rather than letting it roll off. That is nothing short of ultra-aggressive. His reasoning for this aggressive approach is that temporary price pressures have proved incorrect and that there are risks that inflation will remain high.
But as we have stated this will mean very little this week if Russia moves in.
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