Talking Points:

Euro Volatility Risk Skewed to the Downside on Revised Eurozone CPI Data
Aussie Dollar Drops, Yen Rallies as Crimea Votes to Leave Ukraine for Russia
Geopolitical Stress Proves Transitory, Monitoring Follow-On Theatrics Key

The final revision of February’s Eurozone CPI data headlines the economic calendar in European hours. Expectations suggest flash estimates putting the headline year-on-year inflation rate at 0.8 percent will be confirmed. A revision downward may sting the Euro amid speculation the ECB will be forced to expand stimulus efforts to counter persisting disinflation. An upgrade may produce the opposite effect, but follow-through is likely to be limited: ECB standstill represents the established status-quo and data arguing for more of the same is unlikely to materially bolster the single currency. We have now sold the Euro against the British Pound.

The Australian Dollar started the trading week on the defensive while the Japanese Yen advanced on back of geopolitically-driven risk aversion, but the moves did not prove lasting (as expected). The initially dour mood reflected the outcome of a referendum in Crimea where over 90 percent of respondents opted of the semi-autonomous region’s secession from the Ukraine and annexation to Russia.

While an upsetting of the geopolitical status quo is typically treated as risk-negative by the markets because of the accompanying uncertainty, the referendum outcome was widely expected and so did not yield a sustained response from investors. Monitoring follow-on theatrics (including Moscow’s work on a legislative framework allowing Crimea’s absorption into Russia) will be important in gauging further market-moving potential.

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