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EUR / USD
The Euro weakened ahead of Friday’s US open, although with support below 1.1100 after five consecutive daily losses.  US CPI data was stronger than expected with headline prices unchanged over the month compared with an expected -0.1%. The core reading was also stronger than expected at 0.3% for the month which pushed the annual rate to 2.2% from 2.1%.  The stronger inflation data will tend to trigger some shift in expectations surrounding both the economy and inflation trends and will certainly complicate Fed policy as it will be more difficult to justify a very dovish policy stance. Overall, speculation over higher rates will tend to be revived which will tend to underpin the dollar, especially with expectations of further policy easing by the Bank of Japan and ECB over the next month. Cleveland Fed President Mester maintained a generally optimistic tone and was still looking for a gradual increase in interest rates with comments from Fed officials remaining under close scrutiny. According to the latest CFTC data, there was a further erosion in speculative dollar longs to the lowest level since May 2014, dropping by over 30% on the week while Euro shorts dipped below 50,000 for the first time in over 18 months, lessening the risk of a further position squeeze. The Euro found support below 1.1100 and held just above this level on Monday.
JPY 
The yen maintained a firm tone on Friday with the US currency unable to make any headway.  There was downward pressure on oil prices which tended to provide net support for the yen, especially with risk conditions generally subdued. The dollar briefly moved higher following consumer inflation data, but was unable to sustain the advance as US bond yields also moved lower and there was significant selling into the European close with a test of support below 112.50. The latest positioning data recorded a further small increase in net speculative yen longs and yen buying is liable to fade. Risk appetite tended to improve on Monday with modest gains in equities and hopes that the G20 meetings late this week would offer some reassurance for global markets. There was further speculation that the Bank of Japan would ease again in March and there was a weaker than expected PMI release. The dollar rallied from lows without being able to regain the 113.00 level.
GBP  UK retail sales data for January was significantly stronger than expected with a 2.3% gain, although the impact was offset to some extent by a downwardly-revised 1.4% drop for December and Sterling failed to gain any lasting benefit. Government borrowing data was better than expected with a GBP11.2bn surplus and the best January data since 2008 with strong gains in tax receipts. There are still strong expectations that the annual target will be missed with the budget due next month. After Thursday’s late-night session over EU re-negotiation, discussions continued on Friday with a succession of delays. Very late in the US session, a UK deal was agreed which provided some further Sterling support as immediate uncertainty eased. Prime Minister Cameron then confirmed that a referendum on in/out membership would be held on June 23rd with Sterling pushing to highs near 1.4400 against the dollar and around 0.7725 against the Euro.  The announcement that London mayor Boris Johnson will campaign for a vote to leave the EU is a potentially significant setback for the yes campaign and Sterling weakened sharply to lows just below 1.4250 against the dollar. The currency will remain vulnerable to further volatility as the campaign continues with evidence of significant selling in the options market.
CHF
The Euro was able to find support above the 1.1000 level against the franc on Friday without being able to make any significant headway while the dollar was blocked below parity. There will be further speculation of National Bank intervention to curb franc gains with improved risk conditions helping to curb franc demand. The EU was unable to make any progress on the migration crisis at the latest Summit meeting which is liable to maintain an underlying increase over internal political stresses and tend to increase concerns surrounding the overall financial outlook.
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