|FOCUS10/04/20191FOCUS|EUROZONE10April2019ECB:ReadyanddeterminedKEYMESSAGESThemacroassessmentwaslittlechanged,butmostofDraghi’sremarkshadadistinctivelydovishflavourtothem.TheECBpresidentreaffirmedabiastoeasemonetaryconditionswhilehighlightingthecentralbank’sreadinesstoactifneededanditsdeterminationtopursueits(symmetric)pricestabilityobjective.WeexpectarelativelygenerousTLTROIII.Tieringnowlooksmorelikelythannotandcouldbepre-announcedasearlyasJune,eventhoughforimplementationwestillthinkweneedtowaitforlaterintheyear.Macroassessment:notmuchchangeThemacroassessmentwaslittlechangedfromthemessagedeliveredat“TheECBanditsWatchersConference”.Theeconomicslowdownhasproveddeeperandmoreprolongedthanthecentralbankhadanticipatedandriskswerestilldescribedastothedownside.Ontheotherhand,fundamentalsremainsupportivewhileanumberofone-offfactorsthathadweighedontheeconomymaynowhavestartedtofade,accordingtotheECB.MarioDraghirestatedhisassessmentthattheprobabilityofarecessionislow.Wecontinuetobelievethisassessmentisoverly-optimistic.Whiledataaresettoreboundinthenearterm,growthislikelytosettleatbelow-trendpaceinH22019,webelieve,whichshouldleadthecentralbanktorevisedownyetagainitsgrowthprojections.PleaserefertoMARdisclosuresandimportantinformationattheendofthisreportFX:TheEURislowerfollowingtheECBmeeting,withEURUSDretracingslightlymorethan50%ofitsgainsfromearlierintheweek.Inourtradeideasportfolio,wecontinuetoholdaEURJPYshortposition(120digital,1-Aug-19expiry).WealsonotethatcurrentimpliedvolatilitypricingallowsinvestorstopositionforanupsidebreakoutinEURUSD,andhedgeagainsttheriskofadownsidecollapse,whilefundingviashortUSDCADstrangles.Wedonotthinkthisisjustifiedand,asaresult,holdaEURUSD1.10/1.18stranglefundedbya1.2969/1.3796strangle(6mexpiry,initiatedon28March2019).Rates:ECBPresidentDraghimayhavepresentedadovishmessage,buttheabsenceofanyconcretepolicyresponsefromtheECBledtoarepeatoftheincreasinglyfamiliar“disappointmenttrade”ineuroarearatesmarkets:theyieldcurvebullflattened,Bundyieldsed...
