Supports hold on cautious optimism over new sanctions against Russia, Ukraine in focus

While the economic calendar is packed with German GDP growth and Lagarde's speech in Europe, durable goods orders and PCE in the US on Friday, Markets are confused about the Ukraine situation.

European markets are expected to open higher following Wall Street enjoyed a dramatic reversal overnight as US President Joe Biden and his G-7 allies unveiled new sanctions aimed at limiting Russia's ability to transact in world currencies, including measures against banks and state-owned enterprises.

Aspects of US and allies' newly imposed sanctions on Russia

Major indices are holding their support levels as fears over a slowdown in the global economy eased after new sanctions revealed that Russia is not disconnected from the SWIFT international banking system nor is targeted for oil and gas export sanctions. Even so, any rallies might be short-lived, as Russia's military action in Ukraine poses enormous risks for the world economy. New sanctions against Russia have compounded concerns about the energy crisis in Europe as markets are waiting for Russia's response.

A pause in the markets can be realized as investors need some time to digest the probable rewritten economic roadmap after the conflict between Russia and the west as Russian troops are approaching Kyiv.

A war-shadowed monetary policy

Traders are also examining the impact of the war on monetary policy worldwide as well as its direct impact in Ukraine. The European Central Bank (ECB) may be forced to slow its shift from stimulus measures if the situation in Ukraine worsens. The war can be expected to slow but not stop approaching interest rate hikes.

Lagarde's speech is due later today

ECB president Lagarde's speech today will be closely watched by investors. She could provide insight into future ECB actions following the largest invasion against Europe since WWII.

FX market developments

The dollar index jump stalled at the 20-month resistance of 97.72. In addition, the rouble plunged to its all-time-record-low of 89.986 per dollar overnight before recovering slightly. Having hit its lowest level since May 2020 at 1.1106, the euro recovered in the Asian market. Additionally, the Australian dollar and the pound suffered losses, and both currencies are still struggling to recover from their setbacks.

PCE and durable goods orders on the data front

The core personal consumer expenditures index - the Federal Reserve's preferred measure of inflation - will be released today. Additionally, investors will pay attention to the core durable goods orders index in January, which is forecast to decline by 0.2% to 0.4%.