EUR Slips Ahead of ECB Announcement

Traders Cautious Ahead of ECB (Not) Tapering Announcement

It’s been a relatively calm start to trading on Thursday and the US is poised to open in a similar manner, as traders await an announcement from the ECB on its asset purchases.

As is often the case, we appear to be witnessing the calm before the storm in the markets, with the ECB announcement likely to create significant volatility as traders weigh up just how dovish or hawkish the central bank is in light of recent data.

There’s been months of speculation about how the ECB will taper its asset purchase program – although the bank itself prefers to refrain from such language in fear of a repeat of the 2013 taper tantrum when the US was conducting a similar exercise. It’s this fear that prompted Draghi late last year to claim the initial €20 billion reduction is absolutely not tapering as bond purchases could increase again if need be.

ECB Decision: “Lower for Longer” or “Higher for Shorter”?

EUR Upside Possibly Hanging on Defined End Date For QE

How the central bank goes about this will be important though and likely trigger a response in the markets. The euro has rallied strongly in recent months on the expectation that the central bank will announce a plan that aims to end its QE program probably late next year. Should the ECB adopt a more gradual approach, we could see some sharp declines in the single currency.

With markets having already priced in the most likely outcome – a 50% cut to €30 billion per month for nine months – or a variation of it, it may take something significant and unexpected to trigger more upside in the euro. For example, investors are anticipating the usual cautious approach from the ECB which likely involves laying out no plans beyond the next expiration along with the standard warning that purchases could rise or fall, depending on how the economy performs. Should the ECB surprise us and name a potential end date that has been agreed – all being well – then this may lift the euro in the near-term.

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With Investors a Little Rattled, Another 72 S&P 500 Companies Prepare to Report

While the ECB will likely hog the limelight today, US earnings season will continue to be an important driver for markets. Weaker than expected earnings were largely blamed for yesterday’s hiccup in an otherwise flawless stock market rally and another 72 S&P 500 companies are preparing to report on the third quarter today, including Intel and Microsoft, although we’ll have to wait until after the market close for these results. Pending home sales and US jobless claims make up the only two other economic events today, although I imagine focus will primarily be on the ECB and earnings.

The US Dollars Dual Personalities

Economic Calendar

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