EUR/USD: the dollar weakens due to FED governors' "dovish" tenacity

Tuesday was a rough one and volatility was present, even though we could have expected more given the amount of information that was disclosed.

This morning it was the marked decline in the ZEW index which weighed on the euro, combined with inflation that  stabilized at 1.7%, a threshold leaving substantial leeway for the ECB if it wants to increasingly easen its monetary policy. The IMF is also going in this direction and it called on the ECB - through Mr. Banchard - to conduct a more aggressive monetary policy.

The IMF has made a downward revision of its outlook for global growth, and aside from Japan, everyone got some bad news. Overall, the revisions are relatively homogeneous, which has not enabled traders to generate more volatility. For 2013: U.S. 1.9%, France 0.1%, Germany 0.6%, Spain -1.6% and -1.5% for Italy. Suffice it to say that the economic contrast is palpable... Yet the Euro has not suffered from these revisions.

American statistics should also have allowed the dollar to get back in shape as industrial production beat the consensus through the construction of new dwellings, which hit a 5-year high, rising by 7% over the previous month.

But no one expected the FED's "dovish" governors to step up to the plate this afternoon. William Dudley said the employment report for the month of March should remind us that we should not declare victory prematurely, and therefore attempt prematurely to reduce the quantitative easing that he always considers appropriate.

An opinion not shared by Governor Plosser (who did not vote), who would like the monthly volume of QE ($85 billion/month) to start decreasing now. Today's stats are a reminder that for now, the FOMC is not yet ready to cut the QE. The decline in inflation gave a little more weight to the dovish ones as it gives the Fed ample opportunity to continue to pursue a highly accommodative monetary policy.