Coming up during the European day, the Governing Council of the ECB: monetary policy meeting in Frankfurt

  • Announcement due at 1145GMT
  • Followed soon after by President Draghi press conference at 1230GMT

There have been a couple of preview posts on ForexLive earlier:

More now, firstly with extra from Barclays:

We stick to our call that the ECB is likely to extend QE into 2018, though at a slower pace (EUR35-40bn in H1 and EUR15-20bn in H2), and change its forward guidance on rates before year-end, paving the way for a cumulative 20bp increase in the depo rate delivered in Q2 and Q4 next year.

ECB will present the new staff macroeconomic projections.

  • We expect them to revise growth slightly up, at least for 2017 from 1.9% to 2.0% or 2.1%, owing to stronger growth in H1.
  • Nonetheless, we still estimate the output gap by end-2018 to be negative at -2%.
  • The core inflation path is likely to be further revised downwards on a strong EUR, now c. 4% higher on a NEER basis relative to the June meeting.
  • We continue to forecast both core and headline inflation at 1.2% in 2018, well below the ECB target.

At the September meeting, the ECB is likely to prepare markets for an announcement on the extension of QE to be delivered possibly in October.

  • We think that prudent risk management will prevent the ECB from announcing this year the tapering of QE towards zero.
  • We therefore retain our baseline policy view and expect the ECB in October at the latest to extend QE to H1 18 at a reduced pace of EUR35-40bn per month. This would be followed next year by a further extension of QE to H2 18 at a pace of EUR15-20bn (similar to the volume of EGB net issuance).
  • We also expect the ECB to deliver in mid- and end-2018 a depo rate hikes of +10bp. As a result, we also see a necessary change in the forward guidance on rates when QE is extended to adapt it to the stronger macroeconomic and lending conditions, without deflationary risks.

And this from Bank of America / Merrill Lynhc

(ps. the BoA/ML is huge ... this is just a summary):

We have been arguing for quite some time now that the ECB will choose not to disclose at its September meeting the fate of QE in 2018. Indeed, we think that the tightening in monetary conditions driven by the currency appreciation makes the Governing Council more sensitive than usual to market perceptions of the policy differential across the Atlantic.

  • Until the beginning of the summer, the ECB could have developed a staged approach to exiting QE under cover of the Fed's adherence to a predictable path of normalisation. Since then stubbornly low US inflation - and probably less explicitly the complexities of the political situation - has seemingly eroded the Fed's confidence.

It's actually roughly when the ECB got ready to ever-so-slightly toughen up its communication at Sintra that the Fed's signals became harder to read.

With the euro now having broken the 1.20 USD threshold for the first time since the start of QE (albeit only for a day), we think the ECB will avoid to pre-commit to any path for QE next year before hearing the FOMC's views.

  • In particular if the Fed chooses to offset the beginning of its balance sheet offloading with a downward revision in the dots, additional pressure on the euro's exchange rate would in our view warrant a recalibration of the ECB's own policy.

In our view, it is only if the Governing Council has already decided to opt for a dovish surprise - to be clear a significantly slower pace of QE adjustment that the market currently expects - that it could take the risk of disclosing its intentions already.

  • Indeed, this could be seen as providing enough insurance against whatever dovish surprise the Fed in turn could come up with.
  • Our impression though is that the council has not yet reached "maturation point" (the Minutes confirmed that they had no formal discussion of the programme's future) and would rather retain maximum optionality.
  • At the July meeting Draghi managed to sound dovish without elaborating much. With a new set of and the new market focus on FX we think the ECB will have to be more explicit.

"WTF are you lot doing over there???"

(I'm not sure who of these two said this :-D)