This week in the markets: Geopolitical tensions in Ukraine

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Cable started the week on the back foot, slipping below 1.71, which had previously acted as good support. Stop losses were triggered down to a low of 1.7070. There was little data to speak of on Monday, so cable remained below 1.71 throughout the day. In the evening, ECB chief Mario Draghi spoke before the Committee on Economic and Monetary Affairs at the European Parliament.

No-one was expecting much, and Draghi didn’t let us down and said little that we didn’t already know. He repeated the much-used comments about the risks facing the eurozone from high unemployment and low inflation, saying further tools were at his disposal should inflation not pick up towards the end of the year. EUR/USD, which started the week as high as 1.3640, began its steady decent lower.

By Alex Edwards at UKForex, an international money transfer service

Tuesday’s big news was the large rise in UK inflation, which jumped from 1.5% to 1.9%, far greater than the slight increase to 1.6% the markets were expecting. This was the biggest monthly increase since the 0.5% rise in Oct/Nov 2012. The move saw the sterling soar as pound-bulls saw bets on 2014 rate rise increase.

Cable jumped from 1.7062 to 1.7140 on the news and pushed up to another multi-year high of 1.7191 later in the day, following bullish comments made by Mark Carney at the House of Comments Treasury Committee Hearing. GBP/EUR mirrored cable’s push upwards from 1.2530, trading as high as 1.2637. Tuesday also saw the minutes of the Reserve Bank of Australia’s latest meeting released. The key phrase “the exchange rate remained high by historical standards” was still included and saw AUD/USD push towards .94 as a result.

The monthly German ZEW Economic Sentiment survey continued its recent downtrend and undershot expectations by printing 27.1 down from the previous reading of 29.8. This was the eighth successive fall, and given the recent happenings in Ukraine, a ninth is a distinct possibility. US Retail Sales printed lower than expected, coming in at 0.2%, less than the 0.6% forecast. The core reading printed 0.4% instead of the anticipated 0.5%. The Kiwi fell on Tuesday night, as the quarterly CPI reading held steady at 0.3% , when a slight uptick was expected.

Wednesday started with Chinese GDP printing 7.5% and Chinese Industrial Production showing a 9.2% rise. Both were slightly better than forecast, however, the Aussie and Kiwi fell on the news – the releases reduced the likelihood of stimulus measures being used by the Chinese government to spur the stuttering economy.

UK unemployment data was released on Wednesday morning and showed a fall from 6.6% to 6.5%. The accompanying Average Earnings Index showed slower than expected wage growth, with the three months to May increasing 0.3% less than the 0.5% forecast. On the news, cable slipped from 1.7150 to 1.7123. Fed chair Janet Yellen’s two-day testimony before the House Financial Services Committee came to an end on Wednesday evening. She said that as long as labour conditions continued to improve, policy makers were on course for a Q3 2015 interest rate rise.

Thursday saw GBP/EUR hit another recent high of 1.2672, as eurozone CPI was unchanged from the flash reading of 0.5%. US Building Permits and Housing Starts undershot forecasts, but Unemployment Claims and the Philly Fed beat expectations, the latter smashing market expectations of 15.6 to print 23.9.

EUR/USD hit a six-week low of 1.3512 overnight, as geopolitical tensions rise on the back of the alleged shooting down of a Malaysian Airlines flight over Ukraine. Expect this along with the ongoing tensions in Gaza to weigh on risk sentiment.

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