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Forex Flash: Normalization in Eurozone is EUR positive – UBS

According to the UBS Analyst Team, “We remain of the view that at least in the short-term any further normalization in the Eurozone is euro positive. Draghi skillfully corrected in his February press conference what many saw as a communication mistake back in January when there was an impression of the ECB having become more hawkish.”

Clearly, the ECB is firmly neutral at the moment. Nevertheless, the ECB balance sheet has shrunk substantially as banks have repaid LTRO cash, which stands in stark contrast to other major central banks. The rise in rates has been partially reversed since, with ECB officials pointing out that liquidity will remain plentiful, but the fact is that the ECB is not fully in control here as banks are obviously free to take their own decisions.

Moreover, the recent market hype about Draghi mentioning the exchange rate in his February press conference may have been overdone. “A stronger exchange rate is obviously growth-negative, but in terms of inflation the impact might well have been compensated by higher energy prices. We believe the inflation outlook will remain 'broadly balanced' and that the ECB will thus take no further accommodative action.” they add.

Fundamental Afternoon Wrap: GBP Pounded as EUR drops off radar and JPY simmers

The afternoon round up of institutional research has one clear theme. Don´t try to catch falling knives, and as such, don´t try to be a Cable hero. Other areas in focus are JPY which, as the markets weakest currency so far this year, is naturally obliged to be covered, and NZD where overnight the Governor indicated that the RBNZ were willing to take action. Otherwise, EUR has completely dropped off the analyst radars for now, but no doubt it will return again next week following the Italian elections.
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Forex: EUR/USD supported by 1.3370, rises after EMU confidence

After being unable to reach the 1.3400 handle after US housing data, the EUR/USD eased back to 1.3370, where it found support against further downside. The release of EMU consumer confidence is allowing the pair to do another try to the upside.
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