At today's ECB meeting, we think an increase in the size of the PEPP is highly unlikely, and as long as the overall size remains unchanged, we doubt it'll have much of an impact on the euro. But expect downward revisions to growth and upward revisions to the inflation forecast.

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USD: Can the bond market survive another auction?

Yesterday, treasuries survived both an uninspiring 10-year note auction (which saw weaker demand than expected) and the release of US inflation figures that did not exceed consensus forecasts. Today, the focus will shift to the USD 24bn auctions of 30-year Treasury notes, which is expected to be another key risk event for the battered bond market.

Considering the centrality of Treasury yields in the current market narrative, the auction should be a key driver of risk appetite: another contained reaction in yields (even in the event of a somewhat weak auction) may leave more room for risk stabilization and continue to benefit pro-cyclical currencies while keeping USD pressured.

The calendar in the US is not particularly busy otherwise, with only the weekly jobless claims possibly having some market impact - consensus is centered for a decrease to 725k.

EUR: The ECB shouldn’t be a risk event

Unlike recent meetings, the euro won’t be at the center of the discussion at today’s ECB rate announcement, considering the currency has depreciated both vs USD and on a trade-weighted basis. The key focus will be instead on any potential measure to counter the recent rise in bond yields.

We think that an increase in the size of the PEPP is highly unlikely, and any action there may only consist in frontloading some bond purchases. Still, as long as the size of the PEPP remains unchanged, we doubt that would have much of an impact on the euro. Incidentally, we expect a downward revision in the growth forecasts for 2021 and upward revisions in the inflation forecast for both 2021 and 2022 - all of which should not surprise investors.

We do not expect the ECB announcement to generate a material impact on EUR/USD, which should continue to see a domination of USD-related drivers (global risk appetite, treasury yields dynamics) over EUR-specific drivers. We estimate a short-term undervaluation of around 2% in the pair, which suggests some decent room for a rebound.

GBP: EUR/GBP close to technical support

A very quiet data calendar in the UK is leaving GBP without any clear catalyst.

Cable remains largely driven by the dollar side, while EUR/GBP is finding some support around the 0.8550 level, which is close to the 0.8541 February lows.

CAD: BoC tapering expectations may help the loonie

As discussed in our Bank of Canada review, yesterday’s unchanged stance by the central bank was not a surprise considering lingering economic uncertainty and the fragile bond market. Still, when new forecasts are released at the 21 April meeting, the Bank may taper its bond purchase program for a second time.

Markets may start to price in the move in the coming weeks, which should pair with supported oil prices to help put a floor below CAD.