FX Market Summary 03-25-2014: ECB Talks Down The Euro

The dollar came under heavy selling pressure during the late New York session on Monday with suggestions that a large order caught out a market when liquidity was weak. EUR/USD surged to highs around 1.3875 with no new fundamental information before consolidation just below the 1.3850 area.

After the late-session fireworks in New York, Tuesday’s Asian session was devoid of major interest. The Australian dollar maintained a firm tone as AUD/USD probed 2014 highs just above the 0.9150 level with a covering of stale short positions. USD/JPY found solid support on dips towards the 102.00 area.

The headline German IFO index was slightly weaker than expected with the first decline for five months as it edged down to 110.7 from 111.3 the previous month while expectations held firm and EUR/USD dipped only briefly.

There were potentially significant comments from Bundesbank head Weidmann who stated that any further strengthening in the Euro could be combated by a move to negative deposit rates. He also stated that quantitative easing could not be ruled out completely. The underlying tone was still very cautious, but there was speculation over a potential shift in Bundesbank thinking which could also have an important wider impact on ECB policy. In response, there was a fresh downturn in the Euro with EUR/USD testing the 1.3800 support region.

The headline UK inflation data was in line with expectations with a decline in the annual rate to fresh four-year lows of 1.7% from 1.9% the previous month while core data was slightly stronger than expected. As far as second-tier data is concerned, there were weaker readings for producer prices which suggested forthcoming data would be weak while the annual house-price index gain was stronger than expected at 6.8%.

Sterling continued to some resilience during the session with EUR/GBP edging lower to the 0.8350 area as GBP/USD found support around 1.6480 and probed resistance above 1.6500.

Initial US trends were limited with Philadelphia Fed President Plosser maintaining his traditional hawkish tone with comments that short-term interest rates could reach 3% by the end of 2016.

EUR/USD initially found support close to the 1.3800 area before being pushed lower again by reported comments from ECB member Makuch who stated that he was open to quantitative easing if necessary. USD/JPY moved to the 102.45 area with the dollar attempting to regain some lost ground, but still struggling for momentum despite a stronger than expected reading for house prices and an above-consensus consumer confidence release.

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