FxWirePro: Relative value trades EUR/USD/JPY after unsurprised ECB, 3m25D RR to address misalignments

As expected, the European central bank (ECB) left all benchmark interest rates on hold following the latest Council meeting, with the main refi rate remaining at 0.0% and the deposit rate at -0.40%. According to the statement, the ECB continues to expect that interest rates will be held at present levels or lower for an extended period of time and well past the horizon of net asset purchases.

President Draghi stated that risks to the region’s economic outlook are now less pronounced and the main message was that overall downside risks had eased. Draghi was more optimistic surrounding growth, but there were still doubts whether this would translate into higher inflation.

The conclusion of last week’s Governing Council meeting inevitably saw no change to current ECB policy in terms of interest rates and the asset purchase programme. However, perhaps somewhat more unexpected, there was no substantive change to the ECB's forward guidance, with policymakers giving no hint whatsoever that the rate of asset purchases might possibly be slowed further this year beyond the drop to €60bn from April already announced, and reiterating their willingness to increase the programme in terms of size and/or duration if necessary. 

Option Trades:

Buy 6M EURUSD ATM and 6M USDJPY ATM vs. sell 6M EURJPY ATM in 60:100:-150 vega ratios.

EURUSD 3M 25D risk-reversal versus the misalignment of EURUSD spot rate defined as the residual from a 7Y regression of spot on 2Y rate spreads, balance sheets and sovereign spread.

Sell EURUSD 3M ATM vs Buy EURUSD 6M ATM.

Buy ATM 2M EURUSD vs. sell 2M EURSEK, in 100:140 vega ratio.