The ECB will be in the spotlight in the coming week. April’s CPI was not weak enough to make a policy move likely this week but not strong enough to rule one out altogether. The ECB will also be watching money market conditions, with Eonia ending April at 40bp.
Expectation that the ECB will take action has been building this week and the EUR would probably gain if the bank does nothing, but we think the upside would be limited as the ECB has made it clear it is more likely to ease if the exchange rate continues to appreciate. The market will also be wary that the May CPI print released in early June will see a reversal of April’s Easter-driven bounce.
Against this backdrop, we think the risk-reward is attractive for EUR shorts and remain short EURCAD.
BNP Paribas