Talking Points

• SNB to Stick to Dovish Rhetoric But Shy Away from New Easing
• FX Markets to Look for Rate Cut Clues in ECB Monthly Report
• Japanese Yen Sank on Rising US Treasury Yields in Asian Trade

TheSwiss National Bank interest rate decision headlines the calendar in European hours. Data reported since the last sit-down in December pointed to deepening deflation, with the yearly CPI rate hitting a 29-month low at -0.9 percent in February. This suggests SNB Chairman Thomas Jordan and company are likely to maintain an accommodative stance, talking up the threat posed by falling prices and reiterating their commitment to the EURCHF floor at 1.20.

With that in mind, the run-up in oil prices since the beginning of the year is likely to nudge up short-term outlook for price growth, meaning additional easing (such as an increase in the EURCHF floor for example) is unlikely for now. A gradual improvement in the performance of Swiss economic data relative to expectations ought to help on this front as well. TheFranc has run up considerably against the Euro since the beginning of the week ahead of the SNB announcement, which could reflect building expectations for a more dovish posture. This means some disappointed EURCHF selling may materialize after the policy statement comes across the wires.

The March edition of theECB Monthly Report is also set to cross the wires. Median economic growth expectations for the Eurozone have been revised higher only modestly to reflect positive developments on the sovereign risk front since the first 3-year LTRO in December and continue to call for a recession in 2012. This means traders will be on the lookout for clues about future stimulus efforts, with any clues alluding to rate cuts or additional nonstandard easing measures in the pipeline likely to apply significant selling pressure on theEuro.

TheJapanese Yen pushed aggressively lower overnight, sliding 0.5 percent on average against its leading counterparts to hit the lowest level in eight months. The move likely followed another sharp jump in short-term US yields. The 12-month lending rate rose to 19.8bps, the highest since late July 2011. As illustrated in our weeklyfundamental trends monitor, the Yen has recently begun to reclaim its historically strong relationship with Treasury yields as supportive US economic data weighed against prospects for a third round of Fed quantitative easing (QE3).

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

---Written byIlya Spivak, Currency Strategist forDailyfx.com

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