• The effect of the Brussels attacks proved short-lived as investors quickly dumped safe haven assets
• We expect European equities to erase yesterday losses as the effects of Brussels’ attacks continue to fade.
• Pound sterling may further weaken being under significant downward pressure as investors fear the Brussels events could bolster the case for a Brexit
• AUD/USD settled down and over the medium-term, the pair is moving sideways, stuck between 0.7550 and 0.7680
• Chicago Fed Evans’ comments are underpinning the dollar strength which helps to keep commodities at a lower price
• Many countries, such as Russia and China, are going for gold right now, so does the Fed due to its growing concern that these countries could be selling more and more U.S. treasuries
• We believe that for the time being, the dollar will remain strong against emerging countries, in particular vs AUD and CAD
• Today Fed’s Patrick Harker and James Bullard will likely speak in a dovish tone

Yesterday’s attacks in Brussels caught the market’s attention in such a way that traders remained immune to the majority of economic data released throughout the day. The single currency was heavily sold off as the uncertainty generated by the bombing increased, pushing investors to seek safe-haven assets. In this environment, gold rose roughly 1%, the Japanese yen surged 0.65% against the dollar, while the Swiss franc edged slightly higher against the euro, with EUR/CHF down 0.35% to 1.0876. However, as expected, the effect of the attacks proved short-lived as investors quickly dumped safe haven assets. Gold was even down almost 2% from yesterday’s highs, while USD/JPY moved above 112.20, compared to 111.40 on Tuesday morning.

It was a tough day for the pound sterling, which was under significant downward pressure after the attacks as investors feared these events could provide leverage for the Brexit case. These selling pressures on the pound were also exacerbated by the release of poor economic data. Headline CPI came in at +0.2%m/m in February, well below market expectations of 0.4% but much better, however, that the 0.8% contraction in the previous month. GBP/USD fell initially to 1.4260 in the early European session and continued to slide during the day, reaching 1.4170 by the end of the day. In Tokyo, the cable was treading water, waiting for European traders to return to their desks.

In the commodity complex, metals, crude oil and natural were down. Gold fell, 1.10%, silver slid 1%, palladium was down 1%, while platinum edged down 1.20%. The West Texas Intermediate fell 1.13% to $ 40.98 a barrel, while its counterpart from the North Sea was off 0.98% to $ 41.38. The most liquid iron ore contracts on the Dalian commodity exchange fell roughly 2%, weighing on the Australian dollar. In Sydney, AUD/USD settled down 0.30% to 0.76. However, over the medium-term, the pair is moving sideways, stuck between 0.7550 and 0.7680. A break of these levels could trigger a new trend.

***Yann Quelenn, market analyst: “Fed Members, dovish but optimistic: A week after the Fed decision to hold rates markets are still looking for evidence of the rate path that will be followed this year. Yesterday, Chicago Fed President Charles Evans said that the Fed’s “dot plot”, in which members lay out their growth and interest-rate expectations, was too aggressive. Yet, the Fed still expects to raise rates twice this year despite financial markets pricing in two hikes. Regarding the U.S. outlook, Evans seemed pretty confident that inflation will reach the Fed’s target of 2%. In his view, the growth rate should print above 2% by year-end while the unemployment rate is likely to fall to 4.75%. In other words from Charles Evans’ standpoint, everything is on track.

From our side, we believe that the health of the U.S. economy is largely over-estimated. Debt is massive, unemployment is still declining but labour participation rates are as well. We believe job insecurity, hardly counted in the statistics, is on the rise. Massive intervention from the central bank has only created artificial growth. However, Evans’ optimistic comments underpin the dollar’s strength helping to keep commodities (including gold and silver) at a lower price. Many countries, such as Russia and China, are going for gold right now, so does the Fed as it has growing concern that these countries could be selling more and more U.S. treasuries. Raising rates is not only about the true state of an economy, but also about the geopolitical map. For the time being, the dollar will remain strong against emerging countries, in particular vs AUD and CAD. Today, Fed’s Patrick Harker and James Bullard will speak also. We definitely expect them to appear dovish but less so than financial markets.”***

In the equity market, Asian regional markets are broadly lower this morning with the exception of mainland Chinese shares, which were trading in positive territory. The Shanghai Composite rose 0.35%, while the tech-heavy Shenzhen Composite was up 1.16%. Japanese shares were also trading lower witht the Nikkei and the Topix down 0.28% and 0.42% respectively. In Europe, equity futures are mixed with the Footsie down 0.22%, the CAC down 0.14%, while Swiss and German shares are trading in positive territory. However, we expect European equities to erase yesterday’s losses as the effects of Brussels attacks continue to fade.

Today trades will be watching PPI from Spain; CPI from South Africa; ZEW survey from Switzerland; MBA mortgage application, new home sales, crude oil inventories and Fed’s Bullard speech on TV; current account balance and foreign direct investment from Brazil; trade balance from New Zealand.