Japan Economy Minister Downplays Inflation Risks Despite BOJ Warning 
RBA Signals More Rate Hikes Possible as Australia Battles Stubborn Inflation 
BOJ Seen Holding Rates at 1% While Keeping Inflation Risk Warning 
Gold Slips Below $4050 as Bond Yields Surge to 4.7% on Fed Inflation Concerns – Sell Rallies at $4060 Targeting $3940 
Gold Shines on Oil Relief: Buy Dips at $4160, Targeting $4305 as Bullish EMAs Dominate 
SpaceX Earnings Preview: Bernstein Says 4 Key Factors Will Drive Long-Term Valuation 
Gold’s Bull Run Intact: Safe-Haven Bids Overpower Treasury Yield Pressure 
The FX market continues pricing a high probability of an additional 10 bps rate cut by the ECB in H1 2017 (see graph).
As per ECB official, easing monetary policy by rates cut measures again would require a diverse worsening of the medium-term inflation outlook.
Such a scenario is not impossible but quite unlikely in the coming months, due to the resilience of the European economy and upcoming base effects on headline inflation.
Moreover, deep rate cuts seem definitely excluded, given their negative side effects and potential FX impact, which would be at odds with G20 commitments.
This implies limited downside potential for EUR rates.
A durably accommodative status quo from the ECB implies value in leveraged conditional rolldown trades in the belly of the EUR curve, where rates have the highest chances to remain below forwards.
Given floored ECB key rates and limited potential for EUR rates to decrease, we’ve been cosy enough to recommend 1x1.5 receiver ratio spreads with downside breakevens significantly below April 2015 lows.
