All eyes will be on President Draghi today as he presents ECB’s latest economic assessment. Investors will want to know whether: 1/ Improving Eurozone data will lead to QE taper before long and 2/ Record low Eurozone bond yield will trigger deposit rate cut soon.
Our view is that the ECB will signal little appetite for policy changes anytime soon. As a result, the April meeting could prove far less exciting than its predecessors in January and March. In turn, with market still very short, the lack of news should be seen as good news for EUR. We further suspect that the President could highlight that the ECB would address potential bond market liquidity constraints by tweaking issue limits or expanding the range of available assets. That could come as a relief for many who sold EUR aggressively when on March 5 Draghi suggested that the ECB could cut deposit rate further to facilitate QE purchases.
So, is EUR a buy ahead of the ECB? Market positioning, recent Eurozone data and a non-event April policy meeting could point in that direction. On the day, it should also help EURUSD evidence of renewed US IP weakness in March. All that said, risks about Greece should linger with Athens still to submit an updated reform proposal to unlock fresh bailout funds. Recent headlines seemed to further dash hopes for a deal on April 24. EUR remains sell on rallies for now.
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