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ECB Rate Outlook: Ceasefire Eases Pressure but Hikes Still Expected in 2026 
Yet a central bank can't impose short-term restraint on a financial cycle running for several years. When excesses become apparent, it's too late to act against them. A financial cycle is like a stately container ship; if it is to change course, the captain must bring the wheel round in ample time. This insight should encourage ECB President Draghi: According to our calculations, the Eurozone financial cycle turned upwards at the end of 2015 (see chart on the front page), and both private debt and house prices are on the rise. Now is the time for the ECB to start acting. At the very least, it should end negative interest rates.
The Bund breaking 50bp could be sending a strong signal to euro crosses.
The bullish impact would be the most direct on the EUR/JPY, as the BoJ suppressed yen rates vol.
Even in the run-up to the meetings it had not been expected that the G20 summit would result in any new initiatives, some of the positions were simply too far apart for that to happen. The EU or eurozone nonetheless used the summit to establish itself as a political force. There have been no signs of tension between the individual countries in the eurozone for some time now. Medium term this new sense of unity is, of course, having an effect on the FX market.
The pair such as EURJPY is still consolidating so the potential reaction is still ahead. The sell-off in the EUR bond market seems to be gaining momentum, as pressure on the ECB to taper and normalize policy is mounting.
This will have growing FX fallout if the German Bund confirms the current tentative break to its 50bp resistance (refer above graph).
Such volatility in the rates market is likely to be transmitted to the FX world via turbulence in EUR crosses.
As a result, the euro range should become more volatile, or the case for volatile topside will materialize – according to SG trade ideas, and EURUSD 6m call strike 1.16 is recommended with a volatility knock-in at 9%.
