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Currency markets are starting the week on a more cautious footing, with nervousness emerging from China over the weekend regarding lending, especially in the property sector. This put Asian equities on the defensive, with the yen gaining through the Asia session and the Aussie also weaker. The risk of a credit related car crash is not a new one, but a difficult one for FX markets to trade around, given that it represents an underlying risk that could pan out in either a relatively orderly correction, or hit the brakes in a more disorderly fashion.

For FX markets in general, we are seeing several established trends pausing for breath, most notably on the dollar majors such as EURUSD and cable. Eurozone inflation data today could well be significant in determining the likelihood of the ECB instigating further easing measures at the March meeting. ECB President Draghi was still open minded in comments over the weekend, whilst we have also seen more positive noises from the German central bank head Weidmann who was again open to the idea of pausing the sterilisation of previous bond purchases. This is a technical measure, but one that would put the ECB more in line with the bond purchase programs of other central banks. Also note that the IFO data is released before Eurozone CPI, which remains a key barometer of the German economy, with the potential to impact the euro. Finally, sterling is opening up weaker and threatening the 1.66 level on cable, with weekend comments from BoE Governor Carney again underlining that the Bank is in no rush to raise rates, with increases likely to be gradual when they finally arrive.

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