FX News on EUR-USD: It seems verbal jousting has spread to Frankfurt where various ECB officials have been busily doing the rounds proclaiming that ‘no decision has been taken upon negative deposit rates’, the latest being ECB Vice-President Constancio yesterday. This is despite the fact that we know of commercial and retail banks already being technically prepared for such an eventuality and the fact that the ECB has been analyzing the effectiveness of such a move. In our view negative rates are not so much an option but an eventuality. Aggregate inflationary developments across the euro zone remain muted (despite yesterday’s higher than expected German CPI print) whilst unemployment continues to surge ever higher. Given that governments remain fiscally constrained, it stands to reason that the only way to stimulate aggregate demand is via ever looser monetary policy: say hello to negative rates.
For the moment however USD price action remains in the driving seat of the cross. Indeed yesterday was another case in point, with the EUR-USD up move following down moves made in USD-JPY. The main data releases in the US today are the Q1 GDP revision where expectations are for a print of +2.5% and Initial Jobless Claims. Given that recent data re-lease correlations have tended to work in favour of stronger USD exchange rates we rec-ommend selling into rallies in EUR-USD.
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