The fact that the last two trading sessions on Monday and Tuesday have ultimately seen EUR/USD drop by just four pips, while at the same time having a range of 75 pips, demonstrates the current lack of clarity surrounding the markets. This confused volatility is a consequence of a number of issues.
Firstly, we have the ongoing troubles in Ukraine. This morning the Crimean parliament unanimously voted to join Russia, which has thrown up many questions. Will the EU join in condemning Russian actions taken over the last week? If they were to do so, what sanctions would they impose and what would be the counter-reaction of Russia? Considering the proportion of oil and gas that Russia supplies to a number of EU countries, especially Germany, can the EU nations risk possible disruptions to this supply, and what knock-on effects might this have to the fragile recovery currently underway?
Secondly there is a wide array of data soon to be announced. We are due to hear from a number of the Federal Open Market Committee voting members in the next 24 hours ahead of Friday’s important non-farm payrolls, as well as US unemployment rate and trade balance figures.
As David Madden stated yesterday, we are still in a tight range. If Mario Draghi rules out a stimulus in the near future, we could see the euro trade higher.