The ECB's games have begun with the earlier sources story on the rumblings within ECB HQ
When Draghi drops a bomb he likes it to make as much noise as possible. He gets that reaction from making moves when they're least expected.
"If we look back into the not-so-distant history of January 2015, also then we had the ECB leak / report about smaller QE worth 50 billion per month and 500-750 billion in total. And then, he over-delivered with 60 billion a month and 1.14 trillion in total.
Leading to the December 2015 meeting, Draghi created huge expectations but certainly failed to deliver. The minimal cut of the deposit rate to -0.30% and the lack of additional bond buys (despite the pledge to re-invest proceeds and the extension to March 2017) sent the euro soaring and Draghi later expressed his disappointment.
Therefore, we can assess that the ECB night be attempting to repeat the successful move seen 14 months ago and avoid the bitter one seen 3 months ago: a move to lower expectations, under promise and then over-deliver."
He adds that this could present a great selling opportunity if Draghi pulls out all the stops;
"The ECB has said that it cannot do miracles on its own and that it is the only game in town, or in their words: "the only stimulus program in the past 4 years" and Draghi did call upon governments with spare capacity to do more. But, he also said that his institution will never give up, do what it takes and this could result in more monthly buys, no end date, more instruments and a deeper cut in the interest rate.
The best transmission mechanism of the ECB has been the exchange rate. Without a weaker euro, deflation would have already taken hold and the very modest economic recovery would have been already gone."
We all know that the euro plays a big part in the ECB's plans. They say it's not a target of policy but that's because they have to. Draghi will not want a big appreciation of the euro anytime soon and the rhetoric from him is still very strong about the seriousness of the ECB to act. How far they are willing to go this time is still uncertain. EURUSD has been down over 500 pips since the Feb highs as traders factored in previous messages in the run up to this meeting. Once the NFP is out of the way we will quickly shift focus to the ECB and we'll see whether the market is really set for next week or still has some adjustments to make.
All aboard?
