Weekly Report

Last week ECB President Mario Draghi cautioned that some policy adjustment might be needed at the June 5th meeting. Reactively, the EURUSD has dropped nearly 3 big figures. He went on in vague details, to explain that a number of policy options were discussed but never implicitly stated which ones were favored. Since then, the market has been in speculation mode analyzing the possibilities of lowering of interest rates, currency intervention, an enlarged role for ABS and even

outright QE. The threat of action has the EUR bulls heading for the exists. Thursday’s round of weak Eurozone GDP reads clearly added support that deflationary forces are building and some form of easing is around the corner. The headline Eurozone GDP read of 0.2% was disappointing but the further realization that growth outside Germany has ground to a halt is troublesome. Germany q/q GDP rose to 0.8% while France’s growth flatlined at 0.0%, Italy and Portugal contracted 0.1% and 0.7% respectably.