Global FX: Risk Aversion Tempers

EUR/USD
EUR/USD has seen strength throughout the session today as positive sentiment has pushed global equities up while investors look to increase their risk exposure. The pair saw a small dip early in the European session with Eurozone CPI coming in below expectations at 0.7% vs. Exp. 0.8%. As investors are still weary of how the ECB will react to the growing concern of deflation, despite the lack of action in the ECB’s most recent policy decision. However this EUR weakness was brief as EUR/USD rallied quickly in the afternoon before peaking at 1.3948. The momentum in the pair faded due to offers at the 1.3950 level. With no tier 1 data prices will have very little to guide them until tomorrow’s US CPI, Building Permits and Housing Starts. Also keeping a close eye on the ZEW Survey results from Germany tomorrow at 1000GMT.

GBP/USD
Cable also saw strength today as the USD was weakened across the board. After an unchanged open from Friday’s close GBP/USD remained relatively constant throughout the Asia-Pacific session before falling early in the European session due to real money buying in EUR/GBP. The pair later rallied alongside stock indices and falling bunds and US T-notes. USD saw further weakness after Obama’s sanctions against Russian individuals were perceived as benign and symbolic. Tomorrow keep watch for the BoE’s Mark Carney who will be announcing future plans for the Central Bank, with the UK treasury expected to announce a replacement for outgoing Charlie Bean of the MPC.

USD/JPY
After the massive Russian dominance in the Crimean vote, we have seen a reduction in risk aversion in the market. As, on the surface at least, the tension seems to be softening and both USD/JPY and EUR/CHF benefiting. Also further calmed by both Deutsche Bank and Barclays announcing that the recent copper financing fiasco in China, has been over played. Adding that the fall in copper prices has been due to speculation of a copper finance unwind and lower real demand, suggesting that we should not expect a wave of copper financed defaults like that of Chaori Solar. Supporting the pair further was the liberalization on the Chinese economy. As the USD/CNY band was widened by the PBoC, over the weekend. Even after all these factors adding to the positive sentiment around the beginning of this week, USD/JPY only reached highs of 101.872 by the end of the European session. As the markets wait tentatively for further sanctions from the west on Russia, Putin addressing the Russian parliament and trade data from Japan tomorrow.