- Unsurprisingly, there was no new guidance from Draghi at today’s ECB meeting. He acknowledged the recent softer data but kept his strong and broad-based assessment on growth
- The meeting confirms our view that the next step in forward guidance will come in July, as we did not get any new information.
- Both FX and rates markets were broadly range-trading through the press conference, with 10Y Bunds trading within a 1bp range.
Overall, our ECB view has not changed, as today’s press conference did not provide new information about the next change in the forward guidance. The introductory statement was on the margin slightly hawkish, as Draghi chose to keep the strong and broad-based growth assessment, while pointing to some moderation of late. Rising protectionism was mentioned as a downside risk.
The GC remains cautious about reading the developments behind the growth moderation. However, despite the acknowledgement of a loss of growth momentum, Draghi tried to downplay the implications, stressing that the ECB has unchanged confidence in the convergence of inflation towards its aim. Although inflation measures have moved sideways without a clear upward trend, Draghi mentioned encouraging signs that wage growth has picked up, which might support price pressures in coming months.
The 10Y Bund traded in a very narrow range through the press conference within a 1bp high/low.
While EUR/USD edged lower to test January lows in the 1.2150 area into the press conference, the overall less soft-than-hoped-for tone from Draghi on growth sent the cross back towards the 1.22 mark yet again. With the ECB eager not to steer any new EUR direction amid cyclical weakness and trade uncertainty, we continue to stress that EUR/USD remains at risk from stretched positioning and US cyclical outperformance on growth and rates alike. These USD positives could put the 2017 high of 1.2092 at risk in coming months and we still see the pair as a tactical sell on rallies short term. That said, we remain strategically long the cross via options for a move towards the high 1.20s in 6-12M.
To sum up; overall patience, prudence and persistence will remain the guiding principles of the ECB.
