All eyes on the ECB

Their economists expect the ECB to ease monetary policy at its meeting later today by cutting interest rates (the refi rate from 0.25% to 0.10% and the deposit rate from 0% to -0.10%) and announcing further measures to relieve bank credit constraints.

Recent data have confirmed the prevailing disinflationary pressures, and although a moderate recovery is under way, forward-looking indicators, eg, the PMI surveys, suggest no acceleration in sight.

As rates and credit already price in rate cuts and some credit easing measures, Barclays sees more scope for a larger move down in the EUR and a rally in equities.

They recommend shorting the EUR vs the JPY on account of our view that a bottom in the JPY looks closer at hand.

The weakening in European growth momentum has important implications for the cross-regional asset market rally and our bullish European views, particularly given the fall in the manufacturing PMIs to a six-month low, and following disappointing Q1 GDP growth numbers.

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