Look, the ECB came across as pretty upbeat on things in their annual report. I talked a bit about that earlier this week.

I also showed you the following chart from BofAML which seems to suggest that Draghi may have missed his window or if he hasn’t missed it yet, may be well on the way to missing it:

(Click on image to enlarge)

“Markets are assuming Euro zone data deterioration will be transitory,” BofAML wrote in the piece that chart is from, adding that “the immediate focus in terms of weaker data is the Euro zone, where data surprises are now the most negative since the peripheral crisis.”

To be sure, the ECB is playing that down. “In the first few months of this year we have seen a softening of a number of indicators, but they’re still fully in line with the good scenario that we have, so we don’t see reasons to change our assessment of our projections,” chief economist Peter Praet said in Frankfurt this week, following the release of the annual report. “We have to be careful because downside risks have increased, but in a context where risks remain broadly balanced.”

Ok, so that brings us to the March ECB minutes, out Thursday morning. These are from the meeting where the bank removed the dovish language around APP.  As a reminder, the sooner APP is wound down completely (reinvestments notwithstanding), the sooner the hikes can commence, so depending on the internal discussion about the language tweak at the March meeting, it might be possible to divine something about the likely timing of the first hike.

Well in the minutes, we discover that while “all members agreed” to remove the easing bias from the statement, they also agreed that that move “should not be misunderstood as restricting the Governing Council’s capacity to react to shocks and contingencies if necessary.”

They’re also cautious on all the usual shit. Specifically, they’re concerned about the extent to which the FX market is reacting more to expectations for policy than it is to changes in the economic outlook and they’re worried about protectionism (don’t forget that Draghi had to chin check a certain Treasury Secretary back in January whose weak dollar Davos rhetoric threw a monkey wrench in the ECB’s efforts to normalize without triggering an outsized FX reaction). To wit:

Some caution was voiced, as the more recent developments in the euro exchange rate and in financial conditions in part reflected changing perceptions about monetary and fiscal policies, domestic and globally, as well as rising risks of protectionism and heightened market sensitivity to communication, rather than improvements in domestic economic fundamentals.

Nevertheless, this bit suggests they’re feeling reasonably confident about the outlook for inflation:

The view was put forward that the Governing Council’s criteria for a sustained adjustment in the path of inflation could be assessed as close to being satisfied over a medium-time horizon.

They of course hedged that:

However, the broadly agreed conclusion was that the evidence for a sustained rise in inflation toward levels consistent with the Governing Council’s inflation aim was still not sufficient.

And don’t forget that all of this reflects the policymaker paradox in a world governed by coordinated easing. If you “win” (i.e. if your efforts at accommodation end up engineering the type of on-target inflation and robust growth you intended to engineer), well then the FX market is going to “reward” you by driving up your currency. In a cruelly ironic twist, that can come back and short-circuit everything you’ve been working towards. The only way to avoid this is if the global exit from accommodation is as coordinated as the global plunge down the monetary rabbit was, and that’s clearly not going to be the case across disparate economies operating at different points in the cycle.

In any event, the euro fell following the “dovish” minutes (and I guess, when compared to the March Fed minutes, they were indeed dovish, so maybe the scare quotes aren’t necessary there):

(Click on image to enlarge)

Still, one wonders whether this isn’t misplaced. I mean between the deficit worries in the U.S., the fraught political backdrop in D.C., and the notion that the Trump administration has adopted a weak dollar policy by proxy, it would be tempting to question the relative wisdom of being bullish on the dollar at this juncture.

And besides, when it comes to the bit in the ECB minutes about how the removal of the dovish slant on APP “should not be misunderstood as restricting the Governing Council’s capacity to react to shocks and contingencies if necessary,” remember that the language in question was superfluous in the first place. No one doubts that they could start buying bonds again if they wanted to. Remember, the restrictions in the APP parameters are self-imposed and the only thing keeping them from being altered in the event of a downturn to allow for more easing is political considerations (think: hawks getting pissed). Recall this from Goldman:

We think [that] dovish option [was] of little practical value at the current juncture and its removal allows the ECB to show some gradual progress in its communication reflecting the ongoing economic recovery.

In other words, there was no downside to removing that and doing so gave them a free pass to claim they are making progress on normalization without actually having done anything. So if removing it wasn’t actually hawkish, well then (implicitly) saying it could be added back isn’t really dovish, right? Right.

In light of all the above, we thought the following from BNP was interesting. Basically, this is a bearish euro call for euro bulls (and no, there are no typos there):