Risk mood improves to start the week, eyes on PMI data, geopolitics

Escalating geopolitical tensions over the weekend with Russia and Belarus extending military drills in the eastern part of Ukraine caused markets to start the week on a cautious note. News of US President Joe Biden accepting to meet his Russian counterpart Vladimir Putin, however, provided relief and allowed risk flows to return. US markets will be closed in observance of Presidents Day on Monday. IHS Markit will publish the preliminary February Manufacturing and Services PMI reports for Germany, the euro area and the UK. Market participants will keep a close eye on headlines surrounding the Russia-Ukraine crisis as well.

The White House confirmed that US President Biden will meet with Russian President Putin at the G7 summit on Thursday so long there is no invasion of Ukraine. This development seems to have revived optimism that the Russia-Ukraine conflict could be resolved through diplomacy.

Nevertheless, European Commission President Ursula von der Leyen announced on Sunday that Russia will be cut off from international financial markets and will be denied access to major export goods if it were to invade Ukraine. “The move to sanctions is so enormous and consequential that we know we must always give Russia a chance to return to diplomacy and the negotiating table,” von der Leyen added. Similarly, Reuters reported that the Biden administration prepared an initial package of sanctions against Russia that would bar US banks from processing transactions with Russian banks.

The US Dollar Index, which started the new week above 96.00, stays in the negative territory around 95.80, reflecting the negative impact of the improving market mood on the currency.

EUR/USD opened with a small bearish gap and edged lower toward 1.1300 before regaining its traction. The pair was last seen moving in a tight range above 1.1350.

GBP/USD clings to modest daily gains above 1.3600 heading into the European session.

Gold registered impressive gains and climbed to multi-month highs above $1,900 last week with the precious metal finding demand as a safe-haven asset. XAU/USD has met heavy bearish pressure early Monday and retreated to the $1,890 area.

USD/JPY continues to move sideways near 115.00 despite the selling pressure surrounding the greenback. The JPY is finding it difficult to find demand in the risk-positive market environment.

Bitcoin fell sharply and touched its lowest level in more than two weeks at $38,000. BTC/USD is staging a rebound early Monday but stays below $40,000. Ethereum closed the previous five trading days in the negative territory and fell below $2,600 for the first time since early February on Sunday. ETH/USD is up more than 4% on Monday, trading above $2,700.

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