Risk on the back foot on Russia concerns

Risk FX is mostly under pressure, with heightening Russia concerns keeping the risk trade at bay. 

With plenty of talk around further sanctions for Russia, FX markets have been fairly quiet today with traders reluctant to bid risk higher. There are reports suggesting further sanctions on Russian companies and individuals will be announced by the US today. Meanwhile, EU officials are also meeting to discuss asset freezes and visa bans. Russia had to hike rates to keep inflation under control and stabilise the ruble. With this in mind, I’m happy to be fairly neutral on most risk currencies. AUD/USD is sidelined at around 0.928 and EUR/USD at 1.384. There is growing interest in the single currency on the back of ECB comments last week.

Euro coming under pressure in Asia

ECB President Mario Draghi is finally quite definitive in his opinion of the euro and last week said a higher euro would call for policy action. With jawboning really ramping up on the euro front, it seems the balance of factors remains skewed to the downside. Later today we have German import prices and the German Buba monthly report. Despite efforts to jawbone by ECB President Mario Draghi, EUR/USD remains fairly elevated above 1.38. The pair has slipped from 1.384 to 1.382 in Asia and could be testing 1.38 shortly. A close below 1.38 is likely to see the uptrend broken, which has been in place since July last year, and this could ultimately lead to further weakness. Last week Draghi said a firmer euro would call for policy action to prevent a tightening of conditions and downside risk to inflation outlook. With Russia/Ukraine concerns also ramping up, you get the sense something’s got to give at some point and therefore the pair could be one to watch this week.

Japan’s retail sales surge

USD/JPY has lost some ground this morning on the back of a much better-than-expected retail sales/trade reading for March. It seems stocking ramped up heading into the April consumption tax hike and therefore this jump could be a once off. Retail sales rose 11% on-year, which was better than the expected 10.8% and also a remarkable improvement from the previous reading of 3.6%. This resulted in a minor strengthening of the yen as it reduces the likelihood of further stimulus. However, on further scrutiny of the data, this could really be a once off and a lot of analysts actually feel inflation is likely to cool in coming months.

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