Investors await Fed report, amid hopes for diplomacy

The dollar index clung to its 50-day moving average for a third consecutive day on Friday, as traders await developments in Eastern Europe. On the economic calendar, the UK retail index is the most important morning market release that may help the pound break through the 1.36 barrier after a month of trading sideways. Today's meeting of European leaders will provide investors with insight into the future direction of the bloc's economic policies and confirm their tacit stance on the Ukraine crisis. Meanwhile, one of the most important events today is the Federal Reserve's monetary policy report, which could shake markets in the US trading session.

The Ukrainian crisis looms large over markets

It seems that while the Ukraine crisis escalates and Europe remains concerned about a possible Russian invasion, investors are turning to less-riskier assets such as bonds and gold as market risk rises, resulting in the Dow Jones Industrial Average experiencing its worst trading day in 2022. Leave gold at $ 1,900 and bond yields fall.

At the same time, the hope of finding a diplomatic solution can remove the shadow of risk from the markets and push back the price of safe-haven assets. Hence, the fall in gold and the rise in short-term bonds yields in this morning's trading can be interpreted as signs of hope for a civilian solution.

oil prices fell with optimism about the nuclear deal

On the other hand, positive signs from Vienna indicate that the negotiating parties are happy to reach a possible agreement with Iran, which has caused energy investors to count on increasing oil supply, and therefore oil prices in world markets have fallen. It is a little behind its seven-year-old peak.

Events of the day

The UK retail index is expected to grow 1% after falling 3.7% in December. But rising energy costs, higher interest rates and rising taxes continue to push retail.

On Friday evening, the Canadian Retail Index was released, which is expected to decline by 2% in December. Falling oil prices and a further drop than expected could weaken the Canadian dollar.

In addition, a Federal Reserve monetary policy report will be released that could provide important clues as to the sharp rise in interest rates. The FOMC did not comment on the rate hike last month and how to reduce the bank's balance sheet. This is while the interest rate is expected to reach 2% by the end of this year. The Federal Reserve seems to be cautious in anticipating a debt crisis in an economy that has recently recovered from a pandemic.