US Dollar trades choppy as Russia-Ukraine concerns weigh on risk sentiment

• The US Dollar recovers slightly, driven by increased safe-haven flows on increasing concerns related to the war between Russia and Ukraine
• President Vladimir Putin has signed a decree that allows the usage of nuclear weapons against Ukraine. 
• The US Dollar index trades in the 106 area, in search of support. 

The US Dollar (USD) is entering a choppy trading pattern on the back of headlines around Russian President Vladimir Putin having signed a decree that allows the use of nuclear weapons against a non-nuclear state if it is supported by nuclear powers. The move is widely seen as a clear threat to Ukraine after the United States gave Kyiv permission to use long-range missiles to attack military targets inside Russia. 

As tensions escalate, US equities are turning red and safe havens such as the USD, the Swiss Frank (CHF) and the Japanese Yen (JPY) are seeing substantial inflows. The move is a knee-jerk reaction to the risk-on close that markets saw on Monday. 

The US economic calendar is all about US Housing data on Tuesday, with the  Building Permits and the Housing Starts data. Seeing the recent trend, expectations are that the numbers will point to a broad stabilization in the housing market.  

Daily digest market movers: Geopolitics pressure markets

• Headlines around Russia are delivering a knee-jerk reaction in markets. Russian President Vladimir Putin has signed a decree that allows the full deployment of nuclear weapons against any non-nuclear nation that strikes positions on Russian soil, Bloomberg reportsl. This basically means that once Ukraine deploys long-distance missiles from the US or the UK, Russia will be able to retaliate with the use of nuclear weapons. 
• Meanwhile Ukraine has launched its first ATACMS strike inside Russia, Bloomberg reports - citing local sources. 
• At 13:30 GMT, US Housing data for October will be released:
• Building Permits are expected to tick up to 1.43 million from 1.425 million previously. 
• Housing Starts are expected to decline to 1.34 million units against 1.354 million in September. 
• Federal Reserve Bank of Kansas City President Jeffrey Schmid delivers a speech about the US economic and monetary policy outlook at an event organized by The Greater Omaha Chamber in La Vista, Nebraska around 18:10 GMT. 
• Equities are diving lower after the comments came out around President Putin signing the nuclear weapons decree. European equities are giving up all gains and slide lower by near 0.50%. US equity futures are showing smaller losses. 
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 58.4%. A 41.6% chance is for rates to remain unchanged. While the rate-cut scenario is the most probable, traders have significantly pared back some of the rate-cut bets compared with a week ago.
• The US 10-year benchmark rate trades at 4.38%, sliding further away from the high printed on Friday at 4.50%

US Dollar Index Technical Analysis: Putin did what now?

The US Dollar Index (DXY) shakes up markets with geopolitical headlines taking control of markets. While the G20 group is meeting in Brazil, Russian President Putin signs an expanding decree for the use of nuclear weapons in Ukraine. It looks like markets are starting to doubt if this is still part of the normal “flexing the muscles” or this could turn into an actual threat. 

After a brief test and a firm rejection last Thursday, the 107.00 round level remains in play. A fresh yearly high has already been reached at 107.07, which is the static level to beat. Further up, a fresh two-year high could be reached if 107.35 gets taken out. 

On the downside, a fresh set of support is coming live. The first level is 105.93, the closing from November 12. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00. 

US Dollar Index: Daily Chart