Potential for Unorthodox Policies by the ECB and Ukraine Events Weigh on Euro

The US dollar is stronger against major and emerging market currencies today.  Against the majors, the dollar's gains are concentrated against the euro, where weekend comments played up the chances of unorthodox policy response, and the escalation of tension in between Russia and Ukraine have taken a toll.  

Following the sell-off in US shares before the weekend, Asian equities were mostly lower, though China, Hong Kong, Singapore and Indonesia bucked the trend.    European equities are lower for the third consecutive session.  The 0.8% decline of the Dow Jones Stoxx 600 is sufficient to turn it negative for the year now, and about twice the loss seen in the MSCI Asia Pacific Index.    Technology and industrials are leading today's move.   

In fixed income, there is still search for yield and Australian and New Zealand 10-year bonds have rallied as have the peripheral bonds in Europe, except in Greece.  Emerging market bonds are lower, including Russia and Ukraine as tensions rise.  The ruble itself is off almost 1% and is at it lowest level since March 25.   The Ukrainian hryvnia is off 1.8% and just above the record low seen before the weekend. 

Comments over the weekend are consistent with ideas that Draghi is trying to forge a consensus to take unorthodox measures to provide more stimulus.  Officials have suggested that negative rates could proceed a massive QE program.  The quantitative easing could be more like Japan's than the US or UK in that the assets that may be purchased are both public and private.  

There are not yet sufficient ABS that can be bought, but several banks have recently announced repackaging existing loans to create ABS, and there is some indication that France and Spain are looking ways the government can facilitate the strengthening of that market.  There was also a suggestion by Coeure that, unlike the other versions of QE, the ECB would likely want to target prices rather than quantity.  That seems to be a signal that the focus will be reducing market and bank lending spreads

The euro gapped lower at the opening in Asia and managed to fill the gap early European turnover before falling further.   It has retraced 38.2% of the run-up since April 4 low to almost the tick.   Additional support is seen near $1.3780.   On the upside, the $1.3860 area should now offer resistance.  Sterling has slipped below a similar retracement seen near $1.6720, but there is not much momentum. It looks capped around $1.6750, and additional support is seen $1.6685. 

Despite the heightened tensions, the yen is not building on last week's gains either.  It is trading within last Friday's range, which itself was within Thursday's range.  The greenback has been confined today about a 25 tick range on either side of JPY101.60.