Has Super Mario brokered a currency war cease-fire?

It has been a brutal race to the bottom for currencies. And there have been very few winners as economies remain bruised and battered after interest rates were slashed, the lower bound tested through negative deposit rates and monetary policy re-written to explore more inventive options.

But in the latest chapter, as Europe's central bank gets more abstract, action has swung to credit easing rather than the hefty burden born by rate cuts This maybe, just maybe, could signal the end of the road for not only negative rates but currency wars.

The European Central Bank President Mario Draghi served up what is thought to be the final rate cut in Europe for this economic cycle, taking the deposit rate to -0.40 percent. At the same time, he slammed the door shut on an even deeper foray into negative rates. The euro's haywire 4 euro cents move in one session last Thursday reflected changing market perceptions about interest rate differentials and fair value for the euro.

Parity with the greenback?

Martin Leissl | Bloomberg | Getty Images

Pimco's Head of Portfolio Management in Germany Andrew Bosomworth spelled it out for clients " the ECB is focused on the domestic credit channel to kick-start growth rather than lowering the euro".

While the jury is out on whether the euro will break parity with the greenback this year, any concerted lowering of the currency may be over and other central banks may follow suit. Neil Dwane, Chief Investment Officer Equity Europe of Allianz Global Investors acknowledged the possibility of a hiatus in currency warfare.

"Maybe the two major economies that needed a weaker currency - Europe and Japan, have now got one and the G-20 privately agreed we're not going to compete for the available economic growth through currencies but through quality and innovation," said Dwane.

The Chinese, who are big fans of Draghi's communication skills may follow in lockstep and hold off on further devaluation. This could happen despite the huge bets made by some hedge funds that the People's Bank of China could lower the renminbi by twenty percent or more this year.

"We've been maintaining for some time the Chinese will not devalue," said Dwane.

Goldman Sachs which reportedly closed out its call for dollar strength versus an equally weighted basket of the euro and yen just six weeks into 2016 is among the more bearish forecasters reassessing the euro. It might be a case of another one bites the dust on its parity breaking call.

"The risk-reward basis for euro downside is not compelling in the near term said Goldman Sachs," last week although it continues to hold its 12-month EUR/USD forecast of $0.95.

Nod to the naysayers

A lower currency in Europe has given some protection to a disappointing set of corporate earnings this quarter as a weaker euro has provided a tailwind to euro-denominated exports. Fund managers too may be left reviewing equity exposures if the euro stabilizes or marks higher.

"The sectors that have performed well in European equities have been driven by translation effects on currency and an export-driven model, Draghi is now focusing his actions on credit easing in the euro zone fairly aggressively that should boost domestic demand, much as you've seen in the US," said Stephen Jones of Kames Capital.

"You have to be careful about where you are positioned in the markets as the theme changes from currency manipulation to domestic demand," Jones said.

Draghi continued to overtly paint negative interest rates in a positive light at last week's ECB press conference, but his reluctance to keep the option of more rates cuts alive is a nod to the naysayers about such experimental policy. Investment bankers and retail bankers freely acknowledge a skill set deficit in managing banks in a world of negative deposit rates.

The washout from ECB blowing up the future pathway for negative interest rates could make investors question the scope for future easing in Japan. Many already doubt whether the Bank of Japan can achieve anything positive with negative rates, hence the abnormal reaction of yen appreciation to extra stimulus.

Japan was a somewhat favored trade for fund managers allocating money in 2016, and with the correlation between the yen and Tokyo stock market still high, the result may be standstill at best for Japanese equities.

"Until we see clarity on BoJ and the Federal Reserve it's hard to see how Japanese equities go higher because of the yen strengthening." said Dwane of Allianz Global Investors.

All eyes are now on the Fed's Open Market Committee meeting this week. But remember currency wars have caused a lot of market casualties. If there's any reversal - if that's what we are witnessing -- there could be collateral damage.

Karen Tso is an anchor on Squawk Box Europe, CNBC and you can follow her on Twitter @cnbckaren.

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