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- The ECB will not change policy rates today because policymakers are still on autopilot in this regard for the time being. The ECB announced in March that APP purchases would be completed in Q3, with purchases of €40 billion in April, €30 billion in May, and €20 billion in June.
- Based on that timeline and policy trigger (that rate hikes will occur only after APP purchases end), there is some wiggle room before any actual changes to policy rates. However, with inflation still raging across the eurozone, the ECB will find it difficult to maintain their cool on both fronts.
- The ECB will continue to do what it does best. That is, they are kicking the can down the road for as long as they can afford to. However, there is a growing schism among central bank policymakers regarding the urgency of action. As a result, it will not be as simple as watching the ECB do nothing. The first thing to look out for today will be any changes to the tapering timeline. For the time being, Q3 remains the target, but if the ECB moves it to Q2, more hawkish undertones will emerge.
- That said, the next policy meeting is on June 9, so the ECB will have some time to experiment with this. As a result, today is unlikely to be the day when they announce any significant changes to their outlook or plans. As a result, maintaining the status quo appears to be the most viable option.
- And, even if markets aren’t expecting much from the ECB today, this may pose some downside risk (or, at the very least, limit any significant upside) to the euro and European bond yields. The next important event to follow will be Lagarde’s press conference. The ECB will want to wait for inflation data in the coming months before acting.
- Russia says Putin will consider a variety of measures if Sweden and Finland join NATO: Kremlin remarks.
- Putin will consider a variety of measures once the defence ministry presents them to him.
- The defence ministry requires time to put such proposals together
- Just some spice to the geopolitical situation as it unfolds. Earlier, some comments from Moscow were added.
- If Sweden and Finland join NATO, Russia claims that ‘balance must be restored.’
- This comes as both countries are debating whether or not to apply for NATO membership, which Russia has previously warned against.
- Putin has previously warned of “retaliation” if they join NATO, so that could be another geopolitical risk to consider in the coming weeks/months.
- Sweden and Finland are close allies in this arena, and they can be considered defence partners to some extent. As a result, there should be some agreement on both sides to act collaboratively when it comes to this decision.
- The USD/JPY is tracing lower, down 0.3 percent to 125.25, as price retreats further from yesterday’s potential break above 126.00. The ‘peak inflation’ trade appears to be playing out following the US CPI report earlier this week, and the drag on Treasury yields has also weighed on the dollar in recent sessions.
- There has been some pushing and pulling in between, but for the time being, the dollar appears to have encountered some resistance, with key levels also held in the euro and pound. Let’s take a closer look.
- EUR/USD fell to 1.0808 and was on the verge of testing the March low, but it is currently exhibiting signs of a double-bottom bounce as it rises above 1.0900:
- In the short term, buyers are regaining control with a push above the key hourly moving averages of 1.3038-65. However, a stronger rebound would be more convincing if price could clear the recent swing highs around 1.3165-83 and the 1.3200 handle.