EUR/USD remains almost entirely driven by US credit/equity sentiment: here, further stabilisation could take EUR/USD all the way to 1.160. Levels below that will be harder to justify unless the US CPI on Friday comes in hotter than expected, ING's FX analyst Francesco Pesole notes.

FX markets are keeping the Ukraine story rather sidelined

"Meanwhile, the 10-year OAT-Bund spread widened back to almost 80bp yesterday morning before settling at 78bp. It’s a signal that markets were surprised by S&P’s unscheduled downgrade on Friday, but also that political stability is so far successfully sweetening the pill of budgetary issues for investors."

"Austria’s Schnabel and Germany’s Nagel. Nothing new on rates – as expected – but Schnabel did stress the importance of strengthening the international role of the euro. The ongoing 'global euro' campaign by the ECB remains, however, very much tied to any improvements in politically-driven capital market integration, and it seems unlikely to result in major short-term spot appreciation barring another USD confidence crisis. Incidentally, not all the Governing Council may be entirely comfortable with an even stronger euro, even if direct comments on FX have been rather rare of late."

"One final theme for the euro amid data scarcity: Ukraine-Russia truce speculation, after reports over the weekend about Trump pushing harder for Ukraine to accept Russia’s territorial conditions for peace ahead of a potential three-way (Trump, Putin, Zelenskiy) summit in Budapest in the coming weeks. Even in a scenario where peace conditions are suboptimal for Ukraine, the euro could get a decent boost should a truce be agreed on in the coming weeks. For now, FX markets have kept the Ukraine story rather sidelined, and will probably require some tangible progress on peace negotiations to actively trade it."