Ahead of today’s ECB decision J.P.Morgan write “market focus will be on how the ECB is processing recent developments as well as on economic projections.”

• “Since the January ECB meeting, both growth and inflation have firmed, wage inflation has been sticky.”
• “The only aspect that has materially disappointed has been corporate earnings.”
• “For the EUR, the direction of travel in growth has been encouraging, but in the near-term, US developments rather than the ECB is expected to set the tone.”
• “EUR/USD fair value based on real rate spreads is between $1.09-1.1150, so there is room for upside if US data moderates.”
• “Our bias has been that a greater wedge should open up between the Fed and the ECB given the growth gaps, which should eventually push the fair value of EUR/USD lower towards $1.03-1.05.”
• “Recommended tactical exposure to this theme is low and only via options given the recent upturn in European growth but our bearish medium-term bias on EUR/USD remains intact given its growth and yield deficits vs. the US.”