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EUR/USD Dropped After Brussels Attacks

• Atlanta Fed President Dennis Lockhart said the USA may be in line for an interest rate hike as soon as April. Lockhart said the decision to hold rates steady at last week's Fed policy meeting was more about ensuring that recent global financial volatility had settled down, a "patient" approach which he said he supports. The economy is approaching full employment, Lockhart said, and reaching the Fed's 2% inflation target may be in sight. 

• San Francisco Fed President John Williams, who does not have a vote on policy this year, said that April or June would be "potential times for a rate hike".

• Projections issued by Fed policymakers last week showed that 13 of 17 of them expected from one to three rate hikes by the end of the year - a relatively tight spread - with a majority of nine clustered at two hikes.

• While dollar bulls were heartened by the latest comments, the reaction in fed funds futures was muted as some investors held back ahead of speeches by more dovish Fed officials including Chicago Fed President Charles Evans. 

• German economic institute said its business climate index rose to 106.7 from 105.7 in February. The reading compared with the consensus forecast of a rise to 106.0. The gain was driven by improved sentiment in the manufacturing and wholesaling sectors. ZEW said its monthly survey showed economic sentiment index rose to 4.3 points in March from 1.0 the previous month. That compared with the consensus forecast for a reading of 5.0.

• The Eurozone economy regained some momentum at the end of the first quarter, expanding at the fastest rate since December. Eurozone PMI rose from 53.0 in February to 53.7 in March. The improvement was a welcome reversal of the declines seen in the prior two months. 

• The USD climbed against the EUR after Belgian media reported that the explosions occurred in the departure hall of Brussels airport. The EUR/USD broke 1.1219 (23.6% retrace of the 1.0822-1.1342 March recovery) and dropped to 1.1189. We keep our long position unchanged.

AUD/USD: RBA Would Prefer Lower Currency

• Reserve Bank of Australia Governor Glenn Stevens said world commodity prices would have to recover strongly and the US Federal Reserve not raise interest rates at all to justify a much higher AUD.

• Asked if he wanted to see a lower local dollar, he noted that it would be hard to find any central bank that would prefer a higher currency right now.

• He made no comment on the immediate outlook for further rate cuts, but did note that there would be scope for monetary and fiscal easing should the world face another financial crisis. He added: "In the case of business surveys, better conditions seem generally to have continued in the early part of 2016, though labour market data have been more ambiguous."

• We went AUD/USD long at 0.7570 for 0.7800. Today’s explosions in Brussels spurred inflows into traditional safe-haven currencies and assets, which hurt the Aussie. Today’s close will signal whether the correction may have a wider range.

EUR/GBP: Sterling Weaker On Moody’s And Inflation Data

• Moody's, which rates the UK one notch below triple-A with a stable outlook, said Britain's credit rating will be put under pressure. The budget's significant downward revision to the economic growth outlook for the coming years and an upward revision to deficit forecasts are the two key negative factors. In a separate report Moody's said it saw "clear downside risks" if Britain left the EU, and repeated its warning that this would make the country more vulnerable to a downgrade.

• Standard and Poor's agency, which rates Britain as top-grade triple-A albeit with a negative outlook has said it could downgrade it by as much as two notches if it quit the EU. 

• February British CPI came in slightly below market forecasts at 0.3% yoy (expected: 0.4% vs. 0.3% in January). Prices were expected to have moved off former lows as the effects from lower oil prices become less of a factor due to the fact that they are already priced in, although this has not proved to be the case. This is still well below the Bank of England target of 2.0% and inside the recent forecast from the BOE inflation report that sees inflation remaining under 1.00% in 2016.

• The GBP dropped after a warning from Moody's on the impact on Britain's credit rating of last week's budget and after the CPI data. We went EUR/GBP long at 0.7830. Technical analysis supports our strategy. Long tail on Thursday’s candlestick line continues to underpin bulls and keeps the bias on the upside. Bulls have managed to sustain trading above the kijun line at 0.7791 and this adds to the upside potential.