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    European Session – Euro subdued ahead of ECB; aussie extends gains

    Major currencies drifted sideways for much of Monday’s European session on what turned out to be a quiet trading day with little on the data front to excite markets. The US dollar was broadly stronger but the euro came under pressure at the start of the session as expectations of ECB easing on Thursday intensify.

    Better-than-expected German factory orders out earlier in the day failed to support the euro, which slipped from around 1.0990 dollars to around 1.0950 soon after European markets opened. Markets have priced in at least another 10bps cut in the deposit rate this week and there is speculation that the ECB may go further and expand its QE program. This is likely to weigh on the single currency at least until Thursday’s policy announcement. The euro recovered slightly to 1.0968 dollars in late European trading.

    The only other European data out today was the Eurozone Sentix index, which showed sentiment across the Eurozone declining to 5.5 in March from 6.0 previously. The figure was below estimates that the index would rise to 8.0.

    The pound also lost ground against the greenback, ending its 5-day rally to drop from Friday’s high of 1.4248 to 1.4175 in late European trading today.

    The dollar meanwhile recovered from Friday’s lows when it tumbled following a mixed jobs report. Strong jobs gains for February were offset by a surprise monthly drop in average hourly earnings and this is seen as buying the Fed time before it resumes with its rate hike cycle. However, the greenback was unable to extend today’s gains against the yen, which stood firm against other majors following comments from the Bank of Japan this morning that it will wait and see before it decides to ease monetary policy further.

    The US currency pulled back from Friday’s peak of 114.25 yen to ease to 113.63 yen in late European session.

    One of the worst performing currencies on Monday was the New Zealand dollar. The kiwi fell on the back of profit taking following last week’s strong gains, but it also came under pressure from sharp gains by the Australian dollar against its New Zealand counterpart. The kiwi reached a 2-month high of 0.6818 versus the US dollar on Friday but today’s sell-off had pushed it 1% lower before it rebounded to around 0.6788.

    The Australian dollar on the other hand managed to hold on to last week’s gains amid rising iron ore prices and an announcement by China’s government that they will increase fiscal spending in 2016. The aussie retained the 0.74 handle to reach a fresh 7½-month high of 0.7452.

    Friday’s oil rally extended into Monday as Brent Crude hit $39 a barrel for the first time December 2015. US oil futures also rose, breaking above $37 a barrel in late European session. Crude oil was boosted today on talks that OPEC may be aiming for prices of $50 a barrel, leading to speculation of production cuts.

    Looking ahead to tomorrow, markets will be eyeing the latest trade data from China and GDP revisions from Japan.

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