BOE: Pill asked whether QT is state contingent

• In FX, EURUSD has entered a corrective phase and continues to trade below its recent highs. The trend outlook is unchanged - a bull cycle remains in play. MA studies are in a bull-mode position, highlighting a dominant uptrend. Sights on 1.0961 next, the 76.4% retracement of the Sep 25 ‘24 - Feb 3 bear leg. Clearance of this level would open 1.1040, the Oct 4 ‘24 high. First support to watch is 1.0756, the 20-day EMA.
• The GBPUSD trend condition remains bullish and the latest shallow pullback is considered corrective. Moving average studies are in a bull-mode position, highlighting a clear dominant uptrend. The pair has recently breached a Fibonacci retracement at 1.2924, 61.8% of the Sep 26 ‘24 - Jan 13 bear leg. The clear break of this price point opens 1.3048, the Nov 6 2024 high. Initial firm support to watch is 1.2855, the 20-day EMA.
• The primary trend direction in USDJPY is down and recent gains are considered corrective. Key resistance to watch is 151.01, the 50-day EMA. A clear break of this average would signal scope for a stronger rally. For bears, a resumption of weakness would refocus attention on key support and the bear trigger at 146.54, the Mar 11 low. Clearance of this level would resume the downtrend.

In the following publication, we provide a summary of ECB-speak between March 18 and March 24: 250324 - Weekly ECB Speak Wrap.pdf

The balance of the past week’s ECB-speak veered in a dovish direction, with several Governing Council members appearing open to the idea of an April cut. The March flash PMIs (released this morning) saw notable upticks in manufacturing components, but subdued demand remains evident in the services sector. On net, the results of the PMIs feel neutral to dovish. ECB-dated OIS price just over a 60% implied probability of a 25bp cut in April. This feels appropriate at this stage, with the March flash inflation data, lending data/the Bank Lending Survey and the April 2 US tariff announcement still to come before April 17. 

• Following comments in last week’s public MNI Connect event, we feel the bar to Bank of Finland Governor Rehn not voting for a cut in April is quite high. Rehn stressed downside growth risks emanating from US trade frictions, while noting that any growth impulse from increased European defence spending would take time to be realised. Meanwhile, he appeared quite relaxed about the balance of risks to inflation. We view Rehn as an important barometer of the median Governing Council view, often striking a centrist/dovish leaning tone.
• Meanwhile, the dovish Stournaras and Demarco argued that recent increases in European bond yields have tightened financial conditions and are thus supportive of further monetary easing.
• Cipollone and Villeroy suggested the ECB has margin for further cuts, while Knot and Muller provided more cautious views.
• Speaking to the Committee on Economic and Monetary Affairs, President Lagarde unveiled staff estimates that estimate “a US tariff of 25% on imports from Europe would lower euro area growth by about 0.3 percentage points in the first year. A European response in the form of raising tariffs on US imports would further increase this to about half a percentage point”. She noted that these policies “could lift inflation by around half a percentage point”…but “the effect would ease in the medium term due to lower economic activity dampening inflationary pressures”. Lagarde provided no meaningful policy signals upcoming decisions. 

Late on Friday J.P.Morgan recommended belly longs on the 5-/10-/30-Year German fly.

• They expect “the 2s/10s curve to continue gradually flattening on pricing out of a large part of the term premia currently in intermediate yields”.
• Further out, they “still find the 10s/30s curve around 5bp too steep after adjusting for monetary policy expectations and the ECB balance sheet composition”.