From JP Morgan client note of Friday, they say the ECB is poised to act at this week’s meeting:

  • Look for additional policy easing
  • The case for further easing is based both on disappointing growth news and signs inflation expectations are drifting lower
  • Draghi’s remarks at the Jackson Hole symposium ” forcefully conveyed the need for additional monetary policy action”

Morgan expects:

  • we look for policymakers to reduce the refi rate to 0.05%, eliminate the 10bp spread on borrowing via the TLTRO, and possibly raise the amounts that banks can borrow
  • In addition, officials are likely to reinforce plans to purchase ABS while making clear that additional steps including sovereign QE are under consideration

But … thats probably it for the year:

  • We believe three developments will forestall a move to sovereign QE this year
  • First, IP is expected to bounce over July/August
  • Second, surveys of activity and sentiment should bottom out
  • Finally, September reports should indicate that inflation likely has bottomed
  • These developments will ease, but not remove, pressure for action, and we regard the combination of data disappointments and Draghi’s speech as sending a signal that the probability of the ECB conducting sovereign QE over the next six months is close to 50%.

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If JPM are right then the euro could see a short-covering rally around the ECB meeting on Thursday