Traders Have an Eye on ECB in Quiet Session

US futures are pointing to another higher open on Wall Street on Wednesday, with traders eyeing upcoming central bank meetings on what is otherwise likely to be a relatively quiet session.

Tomorrow’s meeting of the ECB will be a primary focus for traders this week, with the central bank set to announce plans to extend its quantitative easing program, most likely by another six months to September next year. The decision to extend the program is not as straight forward as it’s been in the past, despite the need to do so given that the central bank still falling well short of its inflation goals.

The worst case scenario tomorrow is that the ECB is unable to agree on a solution and is forced to prematurely begin tapering its bond buying. While this has been talked about as a possibility, I don’t think it’s priced in at all and would therefore likely send shockwaves through the markets. The ECB could announce something to fill the void but we’ve seen on a number of occasions that not all measures resonate with investors in the way that QE does. I think it’s most likely that there’ll be a slight restructuring of the program which will enable them to extend it without the need to any tapering.

Pound Suffers, EUR Contained, BoC Next

The Fed meeting next week is another key risk event for the markets, after which things will probably quieten down as we head into the festive period. A rate hike is now 95% priced in for the meeting, which is unlikely to change much over the next week.

Source – CME Group FedWatch Tool

The economic data has been much better in recent months and policy makers have been very clearly indicating their intention to raise rates again this month. It would come as quite a shock at this stage if the Fed opted against doing so.

EUR/USD – Euro Shrugs Off Soft German Industrial Production

It’s looking a little quiet on the economic diary today, with JOLTS job openings the only notable US release. We’ll also get inventory data from EIA, which is expected to show another small drawdown in crude inventories last week, in line with the data from API on Tuesday. The Bank of Canada will also announce its latest monetary policy decision, with interest rates expected to remain on hold for the eleventh consecutive meeting.

For a look at all of today’s economic events, check out our economic calendar.

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