The situation in the Donbas region remains volatile and strategists at ING suspect markets may be overpricing a "smooth" diplomatic solution too early. Downside risks for risk assets remain sizeable and they expect some support to USD and safe havens this week.

Safe havens still attractive

“Given the very unstable situation in the Donbas area and no guarantee that diplomatic efforts will be able to de-escalate tensions just yet, we continue to see a good deal of downside risk to risk assets in the short-term.”

“Given lingering geopolitical tensions and the lack of other very strong market drivers in the coming days (the US data calendar is very light), we think safe-haven currencies (USD, Japanese yen and Swiss franc) may find some support this week.”

“The dollar may receive some extra help from markets re-asserting bets on a 50bp Federal Reserve rate hike in March as some hawkish FOMC members speak this week. DXY could therefore continue to hold above 95.50.”