Dollar opens the short week lower

• Ukraine fails to ignite over the weekend

• Tomorrow's PMI run from China, Eurozone key to moves

• Low volatility environment keeps carry trades en vogue

• Sterling remains close to 5yr highs, retail sales later in the week

Welcome back from the extended break; I hope you had a restful few days off.

Much like most of us will have found it difficult to shake some of the slumber from our eyes – yes, that really was 4 days – the markets have also remained catatonic through Friday’s and Monday’s sessions. The fears of a ramp up in tensions in Eastern Ukraine as we tore into our chocolate eggs were unfounded and, although a slow escalation of operations by Russian forces is expected, a lack of new developments over the weekend has left markets slightly adrift.

Data last week continued the general theme of the rest of the month; steady increases in optimism around the recovery effort in the US and China allowing risk to move higher, with speeches from ECB members hammering on about the need for additional help for the European economy but with little more than that.

The low volatility atmosphere that FX markets have been trading in as well have kept USD on the back foot and generated considerable interest in carry trades and higher yielding currencies. With little to rock the boat sufficiently this week to change that, we can see another quiet, and sideways, week.

That being said, there are some juicy bits of data to get our teeth into. Tomorrow’s flash PMI series from China, France and Germany will give us the first glance as to the pace of expansion in their manufacturing and services sectors respectively. Both China’s and Germany’s numbers have deteriorated in recent months – the latter’s export numbers not helped by general EM weakness – while France’s figures for March prompted hopes that the worst may be over. We fear those hopes will be dashed.

Those looking for a negative euro reaction should look into the prices paid components of said surveys. Are continental businesses seeing further weak price pressures further on down the road? News from the UK is thin on the ground this week, following its push to 5yr trade weighted highs just before the long weekend. We are reticent to get in the way of what seems like a runaway locomotive but we believe that any attempt of 1.70 will be hard fought. Retail sales on Friday will be closely watched and could be the indicator that pops things higher.

Central bank highlights over the rest of the week include Thursday’s RBNZ meeting which should see a further increase in the bank’s Official Cash Rate by 25bps, despite last week’s CPI miss, and the minutes from this month’s Bank of England meeting on Wednesday. We expect to see some comments about GBP pressure on inflation but little chatter about rate increases.

Have a great day.