EONIA Could Corner ECB

The key eurozone overnight lending metric continues to disconnect from the ECB benchmark in a move that raises the odds of a rate cut. The Swiss franc was the top performer on Monday while the yen lagged. The upcoming Asia-Pacific session is light but German CPI is up later. A new set of Premium Insights starts on Tuesday.

The conventional thinking in markets was that a 1.40 euro could push the ECB to take action but a squeeze in the short-term debt markets could be the catalyst.

EONIA borrowing rates rose 6 basis points to 0.40% on Monday – the highest since 2011 excluding month and quarter-end spikes. The ECB also reported that excess liquidity at eurozone banks had fallen below €100 billion for the first time since late 2011.The moves are likely related to window dressing for eurozone stress tests but could be due to Russian funds shuffling or something more sinister in the European banking system. In any case, the move will have caught Draghi's attention.The market struggled to interpret housing data and Russian sanctions on Monday. Sentiment wavered between yen buying and selling as stocks switched directions.

The initial reaction move was to cheer US pending home sales as they rose 3.4% compared to a 0.7% expected. Relief that sanctions against Russia weren't stronger also boosted sentiment. Still, it was the first climb in home sales in 9 months and the Ukraine saga is far from over.

USD/JPY jumped to 102.62 on the initial move but later slid back to 102.32. Stocks were especially volatile as the wild ride in the Nasdaq continued but the spillover to FX was minimal.

A large rumored pharma M&A deal helped boost cable by more than a half cent in European trading but a strong US dollar bid in New York trading unwound most of the move.

Overall, the see-saw in market continued but the start of a wave of data and announcements will surely shake up the market. The first is German CPI early in Europe. It's a unique release with regional numbers trickling out first followed by the national reading. With the market so sensitive to Eurozone CPI, watch for a euro move on every regional data point.