Overnight, we had a strong move out of the Euro on the back of several risk aversion factors including the escalating unrest in Libya, the risk of a fresh downgrade of Japan, and an earthquake that hit New Zealand. That had investors nervous and fleeing riskier higher yielding currencies including the Euro.

However, the tide turned for the Euro in European trading as we again had another ECB council member - Yves Mersch - sounding a hawkish tone on inflation and interest rates. He made several important statements including that the ECB may make an exit statement in its next meeting on March 3rd, laying the groundwork for higher rates in the medium term. He also said that the ECB can raise rates even if some of the unconventional extraordinarily measures taken by the central banks remain in place are not wound down. Lastly, he said the ECB may warn of upside inflation risks at the meeting.

Here's the Bloomberg Article where his comments were reported: Mersch Says ECB May Have to Rebalance Its Monetary Policy Stance

Last Friday it was Bini Smaghi sounding the alarm about high food inflation becoming embedded and the threat that poses if the ECB does not act. Yesterday, ECB chief economist Juergen Stark said that the central bank is prepared to act decisively and immediately if needed to maintain price stability. The comments are more hawkish than what we heard last from ECB President Trichet following the last ECb interest rate decision.

The comments from Mersch helped the Euro to reverse most of its losses from the Asian session.

For a Technical Analysis look at the EUR/USD, see today's FXTimes Technical Update: EUR/USD's Sharp Pullback is Challenging the Bearish Momentum

Looking ahead, the political tensions will be the main driver, and US markets have yet to be able to price in the events from the weekend. That could mean plenty of risk aversion to come in today's session which would benefit safe haven currencies like the USD, CHF and JPY.