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Forex: A reluctant euro

The notable mover in comparative terms yesterday was the single currency, as the ECB President once again laid out the options facing the ECB should deflationary forces continue to materialise. Whilst he said that the stronger currency was increasingly important for policy, the price action on the euro suggest that the market is not yet convinced of the potential for action next month. But there are also legitimate concerns that whatever measures the ECB announce may not have a material (negative) impact on the currency.  The ECB meeting is just under two weeks’ time, but given the expectations that the ECB has created, it is going to be a long wait and the single currency is likely to get increasingly edgy running into it.

The over-reaching focus today is with Ukraine, given that tensions remain high and there are more talks scheduled between international leaders today. This is likely to keep market cautious, something which has already been notable in Asian stocks overnight.  We’ve seen inflation data in Japan come in slightly weaker than expected and this, combined with the cautious international backdrop, is limiting gains on USDJPY.  Also worth noting is the release of UK retail sales data, where a fall month on month fall is expected after the strong rise of February.  Sterling retains a bullish undertone, having been the only currency to outperform the US dollar over the past week.  Elsewhere, the Kiwi and Aussie have under performed, with the Aussie failing to push back above the 0.93 after the release of weaker CPI data earlier in the week.  Note that USDCNY has moved above 6.25 overnight, continuing the near relentless CNY depreciation seen over the past near 3 weeks.

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