Despite the recent crash of a Malaysian Airlines aircraft in Ukraine, the euro, as well as other higher-yielding assets, was able to pare most of its losses against the dollar in Friday’s trading. The 1.3500 handle on EUR/USD held nicely, with the pair dropping to a low of 1.3489 before finishing the week at 1.3519. Reports suggest that the commercial plane which had almost 300 civilians was shot down by Russian-backed separatists.
Initially, the crash sparked risk aversion in the markets as it highlights the ongoing geopolitical crisis happening between Russia and Ukraine. Investors fled to safe haven assets given the risks posed by the conflict. However, the quick rebound in the markets suggests that the Russia-Ukraine war may have already been well priced-in by traders.
Yes, the threat of an even bigger war with more countries becoming directly involved is a real possibility, but it seems that no one sees this happening any time soon. Today, there are no major reports due to be released from the euro zone. Only data on Germany’s producer prices is on tap and it is expected to show that prices rose by 0.1% in June.
Given that, we would be likely to see more consolidation on EUR/USD. However, this week will not go without us seeing any volatility in the euro. On Thursday, Purchasing Manager’s Indices (PMIs) are due to be released from the biggest economies in the euro zone, namely: Spain, France and Germany. Considered as leading indicators of economic health, the reports on the manufacturing and service sectors will give the markets a glimpse of how well the region is holding up. In fact, if reports disappoint expectations significantly, they may be enough to trigger more action from the European Central Bank (ECB) to ease credit conditions even further and provide support to the economy.