Week in FX Europe – Euro Shrugs Off Ukraine and Draghi’s Comments

The current geopolitical situation has benefited the euro as both the USD and the Rubble have depreciated. The referendum this weekend in Crimea, which the Ukrainian government is saying is a foregone conclusion, has the markets on edge and looking for safe havens. The euro and the yen have been the currencies of choice at the detriment to the dollar. The central banks at both nations would like it to be different as they need weaker currencies in order to boost growth.

This week the ECB’s President Mario Draghi stated that the currency is too strong and the central bank could act.

The euro looked like it might break above the key 1.40 line on Thursday, but the markets paid attention when ECB head Mario Draghi took note of the soaring continental currency. Draghi said that the “exchange rate is increasingly relevant in assessment of price stability”. Although Draghi also stated that the exchange rate isn’t a policy target for the ECB, the hint from the ECB chief was enough to chill the markets and weigh on the euro.

A public wish for a lower EUR and a lower weekly unemployment in the US momentarily gave Draghi some satisfaction. It proved to be short lived as the Ukrainian turmoil continues to drive the euro as a safe haven. The options available to the ECB are not that many and some analysts are unsure the bank would step in if there is continued strength of the currency even as exporting nations such as Germany begin to feel the negative effects of a strong home currency.

Next week central banks around the world will hold center court. Bank of Japan governor will speak on Wednesday ahed of Thursday’s FOMC. There is little expectation of direct actions but the market has been warned about the Fed modifying its forward guidance significantly in the coming meetings to reduce the focus on Non-farm payrolls and the unemployment rate headline number.

WEEK AHEAD

* EUR German ZEW Economic Sentiment
* EUR Euro-Zone Consumer Price Index
* USD Consumer Price Index
* CAD BOC Governor Poloz Speaks
* GBP BOE Governor Carney Speaks
* JPY BOJ Governor Kuroda Speaks
* USD Consumer Price Index Ex Food & Energy
* USD Federal Open Market Committee Rate Decision
* USD Fed’s Yellen Speaks
* NZD Gross Domestic Product
* CHF Swiss National Bank Rate Decision
* CAD Consumer Price Index

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza