FX.co ★ Geopolitical risks weigh on EUR/USD

Markets remain volatile. After the sell-off triggered by geopolitical headwinds on Tuesday, sentiment significantly improved and risk appetite increased. It became known that Moscow and Washington would seek a diplomatic resolution of the conflict.

Meanwhile, demand for gold as a safe-haven asset has grown. The precious metal hit the high of $1,880 per ounce, recorded in the middle of 2021. However, gold's 3-session bull run ended amid the signs of the overbought market and reduced geopolitical risks.

If tensions around Ukraine escalate further, the quotes could head towards $1,900 per ounce.

Meanwhile, the US dollar index is in a corrective move. So far, it has consolidated above 96.00. If investors turn from risk assets, the uptrend may resume. Until then, the corrective move will continue.

In case of a strong uptrend, the dollar index may return to the area of 96.60 where there are its November and December highs.

The euro could strengthen if demand for risk assets returns. The euro/dollar pair touched the low of 1.1280 and headed towards 1.1300 on Tuesday. The market showed no reaction to the eurozone's data on GDP, trade balance, and the ZEW sentiment index amid increased geopolitical risks.

The EUR/USD pair is expected to trade in the range of 1.1300–1.1500. The current level around 1.1300 seems to be the low of this year. The instrument will unlikely rise above 1.1500 any time soon.

In the next several weeks, EUR/USD will hardly show a significant movement. Although many analysts suggest the US dollar will continue strengthening on expectations of a possible 0.50% rate hike in March, the euro will not be affected too much.

On Monday, the US Federal Reserve held a closed meeting, and markets expected a rate hike. So, the greenback rose sharply. However, the regulator did not raise interest rates but just hinted at the possibility of a 0.50% hike in March.

On Wednesday, traders will focus on the publication of the FOMC Minutes. The Fed's hawkish report could boost the dollar.

However, there is an assumption that the pair could be bought out in the event of any such news. The pair may close the week around 1.1400.

Meanwhile, Scotiabank is cautious about possible hawkish statements. If bulls break through 1.1350 and 1.1370, the uptrend may resume.