EUR/USD was subjected to selling pressure late on Thursday following ECB President Draghi’s comments which were more forceful than recent testimony. In particular, he stated that the bank was ready to combat deflation and watching the Euro very closely with the currency’s value an increasingly important factor in policy deliberations. A rapid EUR/USD decline to the 1.3850 area complicated the near-term technical picture and increased uncertainty.
There was continuing unease over the Chinese economy with a particular focus on the financial sector and the Nikkei index weakened to a 1-month low on Friday which maintained a defensive tone towards risk appetite and underpinned the yen. USD/JPY was unable to regain the 102 level and retreated to test support below 101.50.
There were further concerns surrounding the situation in Ukraine with a scheduled referendum in Crimea on Sunday. US and Russian negotiators were engaged in last-minute talks amid fears that geo-political tensions could escalate if the referendum ratifies joining the Russian Federation. Comments from the Estonian Defence Minister that Russia was planning to invade Eastern Ukraine further unsettled investors sentiment early in New York as USD/JPY dipped to lows around 101.20.
The US PPI data did not have a significant impact with weaker than expected data for both the headline and core monthly readings. The University of Michigan consumer confidence data was also weaker than expected at a four-month low of 79.9 for March. In response, there was a fresh dollar decline with moves also potentially exaggerated by position adjustment. EUR/USD pushed higher to challenge resistance above the 1.3900 level with a break above triggering a move to 1.3930.
The latest UK trade data was weaker than expected with a goods deficit of close to £10bn for January as exports dipped sharply over the month. The immediate market impact was limited, but there will be further concerns over a lack of balance in the economy. There will also be concerns that any fresh downturn in the Euro-zone would expose the UK to fresh stresses. GBP/USD did find support below 1.6600 and moved slightly higher as the dollar stumbled more widely.