It's a tough call but the bottom line is that if the ECB is unsure that they have done enough on rate hikes, then this week is perhaps the last opportunity for them to actually deliver one more. Otherwise, the ship might have just sailed and pass them by.
With the euro area economy facing mounting recession risks and credit conditions are tightening, it isn't going to make it any easier to sell a story of raising interest rates further in the months ahead.
But let's look at the scenario in the case of the ECB choosing to not to hike this week. How will that play out?
If so, the only plausible outcome would be for Lagarde & co. to try and sell a hawkish pause. I just don't see any other way. But the thing is, can they really achieve that?
First, let's look at the market pricing. As things stand, the odds of a 25 bps rate hike are now at ~41%. If the ECB does not deliver, this first consideration will be a negative factor for the euro and for regional bond yields as traders will have some repricing to do.
The next thing would be to look for clues in the ECB messaging, in particular the forward guidance. At best, they can say that they are not going to rule out any further rate hikes but in essence, they might just have to keep alluding to being data dependent. If that is the case, it likely won't end up being a convincing one as it already rings similar to the kind of communique we've been seeing since July.
And the next part is one that will not do policymakers any good. That is if economic data continues to disappoint and surprise to the downside. Amid growing risks of a recession and the German economy especially being the sick man of the bloc, the chances of the ECB being able to spin the story back to just focusing on inflation alone are not good.
In this instance, every bad data release will just vindicate markets and the view that the ECB has missed the boat. So, is that a risk that the central bank can take?
To put things more simply, if the ECB does not hike rates this week, it's going to be particularly challenging for them to sell a hawkish pause. And in all likelihood, I reckon they will struggle with it and that is a key downside risk for the euro on the week.