How Close is The ECB to Cutting?

ECB officials gave some stronger hints about easing after Draghi's speech in moves that will ramp up rate cut speculation in the month ahead. Last week the Canadian dollar led the way while commodity cousin NZD lagged in an unusual dichotomy. Positioning data showed a surge of JPY shorts.  

Draghi may have sent two of his top deputies out on Friday with dovish messages. Coeure told the French press the recovery was fragile and said the ECB wants “to accompany it with low, indeed lower interest rates, over a prolonged period.” Coeure's comment came late in the day or it may have had a more pronounced effect on the euro.

ECB #2 Constancio said the near future will be very important to see if inflation has bottomed out and pointed to the next round of ECB staff projections. A German press report said the ECB has also modeled 1 trillion euros in QE, showing that the idea is well-past the discussion stage.

The calendar is light to start the week as the BOJ begins its two-day meeting. Note that China is closed for holiday.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

• EUR +33 vs +40K prior
• JPY -89K vs -69K prior
• GBP +34K vs +30K prior
• AUD -5K vs -21K prior
• CAD -37K vs -33K prior
• NZD +18K vs +18K prior
• CHF +14K vs +15K prior

The jump in yen shorts shows the market isn't waiting around to see how the consumption tax hike implemented on April 1 will affect the economy. The yen trade had gone quiet for a period but it's sprung back to life. The move into euro positions was poorly timed ahead of the ECB as Draghi managed to walk a fine line. Comments from Constancio and Coeure on Friday added to the bearish case.