In today’s European session, we get Norway’s CPI rates for March and UK’s GDP and manufacturing output growth rate for February. In the American session we get the US CPI rates for March and later on the FOMC meeting minutes. In the late European session today (11:45,GMT) the ECB is expected to announce its interest rate decision and is widely expected to remain at 0.0%. Currently EUR OIS support such a scenario as they imply a 97.04% probability for the bank to remain on hold. Hence we expect the market’s attention to turn to the accompanying statement and Mario Draghi’s following press conference (12:30,GMT+3). Despite the recent slight pickup in the readings of the PMIs and the retail sales, we continue to see Eurozone’s economic outlook as subdued, as the rates CPI are slowing down. After the latest meeting where any future rate move was pushed in 2020 and the offer of TLTRO’s was announced, we do not expect to see any major shift in policy. We expect the tone to remain tilted to the dovish side. Currently, the ECB could be monitoring incoming data in an effort to determine the persistence and depth of the slowdown in the EUR area and whether it worsens. Main data for the ECB in the near future, in that regard could include domestic demand, in particular consumption and investment, and whether the weaker external environment, spills over into consumer sentiment and business investment decisions. It should be noted that in that respect, we could see the possibility and economic effect of a hard Brexit resurfacing, as well as the effect of US tariffs on European products. Never the less and despite most analysts considering the event as a low key event, we tend to maintain our reservations for a possible weakening of the EUR. Especially we tend to focus on Mario Draghi’s press conference and whether he is to release any further dovish signals.
With rumors about London preparing to take part in the EU Parliament elections not being confirmed and an offer from Germany for a legally binding end date in five years for the Irish backstop being denied from the Germans, we are back to square one with Brexit. What is official is that the UK Parliament rejected Theresa May’s deal with the EU once again, as it also rejected the possibility of a hard Brexit as well. Also the UK has asked for another extension to the Brexit, this time until the 30th of June. The Germans sound sympathetic to Theresa May’s difficulties, while the French seem more strict and ask also for a valid reason and plan to grant any extension. We see three scenarios as being the main ones which could play out from the emergency summit regarding Brexit. The first scenario, would be for the EU to counter UK’s request, with an offer for a longer delay (maybe 9 to 12 months). In such a scenario, the UK could have also the option to cut the Brexit date short should it find a solution, providing for some flexibility. In case such a scenario plays out, we could see the GBP strengthening as the danger of a hard Brexit is being removed for a considerable amount of time, providing for some flexibility for any further efforts to find a solution maybe even the possibility of Brexit being revoked altogether. The second scenario could involve the possibility of the EU granting an extension until the 30th of June as Theresa May has asked. Despite this scenario also, postponing the dangers of a hard Brexit, it provides little room to maneuver, hence it may provide with some support for the pound, yet the GBP is expected to remain in check, as uncertainty will persist. The last scenario would be no delay being granted. Despite a hard Brexit being in no-ones best interest and remaining the most extreme and abrupt scenario, the lack of any concrete progress on behalf of the British, the fact that it would take only one veto (EU members side) to deny an extension and there not being any lights at the end of the tunnel for the UK to make up its mind, could cause the scale to tilt towards a hard Brexit. In such a case the pound is expected to crash and many analysts seem to be targeting cable at 1.20. We retain as a base scenario the possibility of a long delay, in which case the pound could get some substantial support, however please be advised that such a scenario could have substantial repercussions in the inner UK political stage, with hard Brexiteers probably intensifying their efforts to discredit if not overthrow Theresa May and the UK taking part in the EU Parliament elections possibly.