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Euro Gains versus Dollar Seen in Isolation as ECB's QE Threat Remains -Currency Analyst at DailyFX

"In Q1'14, the Euro gained about +0.35% of the total share in global forex reserves (top among major currencies), while the US Dollar's presence dissipated by about -0.55% (International Monetary Fund). What we may be witnessing is that, as global central banks diversify away from the US Dollar, and as the Euro-Zone continues to progress from the depths of its financial crisis, the Euro engenders the role of an alternative safe haven. Price action among the forex majors last week supports this assertion. If the economic data environment improves for the Euro, then the conversation can shift back to the Euro gaining ground amid growth speculation. The Euro's financial underpinning, beyond the weak economic data environment (the Citi Economic Surprise Index fell to -9.9 on April 11, its lowest level of 2014 and lowest since June 21, 2013) is soft as well. Interbank lending rates continued to push higher in recent weeks: in April, the EONIA rate has averaged 0.212%; in March, it was 0.192% (excluding the March 31 spike to 0.688%, the March average would have otherwise been even lower at 0.167%). In light of these facts, there is little evidence that the ECB's threat of QE will disappear anytime soon; and now that ECB President Draghi has said that “the strengthening of the exchange rate would require further monetary policy accommodation,” the time for substantive ECB action is closer than ever."

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