Main scheduled event of the week: ECB rate meeting
ECB rate meeting in focus
A the July meeting the ECB laid out the potential for a rate cut by changing its forward guidance on rates to include an 'or lower option'. See below:
Market expectations are for the ECB to cut rates by 10bp and the ECB to announce some form of deposit tiering system, given it is explicitly mentioned as a mitigating measure, and restarting QE. Here is a skeleton outline of what to look for
- If the ECB cut rates by 10bps and restart QE, expect the EUR to potential rally on a 'sell the rumour, buy the fact trade'. (watch the statement doesn't flag up further rates cuts to come in the future though as that would alter this outlook).
- If the ECB don't cut rates or introduce QE, expect immediate EUR buyers on a relief rally
- If the ECB cut rates by 20bps plus and restart QE for more than 60bln per month expect immediate EUR sellers.