Does Draghi have one last surprise in store?

Plenty for traders to be on the lookout for on Thursday

The ECB meeting on Thursday may be an interesting affair given the current global economic environment – one the euro area has shown it’s far from immune to – but we shouldn’t expect any knockout announcements.

  • ECB may await Draghi successor
  • Traders eye TLTRO III details
  • Macroeconomic projections may signal future stimulus

I don’t think anyone would suggest we won’t see further attempts at stimulus over the next 6-12 months – although how they would do that having just wrapped up the QE program would be interesting – but the timing of the meeting may discourage any significant action.

Draghi is due to be replaced as ECB President at the end of October and while his successor hasn’t yet been selected, he may prefer to leave it to them to lead the next phase of the central bank. Perhaps if his predecessor had made a similar choice, the ECB wouldn’t have had to reverse course and cut rates at his first meeting back in November 2011.

As I said though, that doesn’t mean this won’t be an interesting and potentially market moving meeting. The central bank doesn’t stop just because plans are already underway for its chief’s leaving party.

In fact, another round of TLTROs were recently announced and traders are keen to find out exactly what the terms of it will be. Will they be generous and therefore act as a small stimulus during a difficult period for the region, or will they be less so and rather just intended to ensure the continued flow of liquidity for the regions more stressed banks.

Could the ECB respond to weaker inflation readings?

We’ll also get a new batch of growth and inflation forecasts from the central bank which will be of interest, especially when you consider the direction of travel recently from almost every major central bank.

Moreover, the latest dip in inflation suggests the central bank may have to once again get creative, not only to boost growth but also to drive inflation higher, with 1.2% overall and 1% on a core basis not even near the target of below but close to 2%.

Source – Economic Calendar

The next ECB President has quite a job on their hand and tomorrow may give us a better idea of just how big a job that is. I think Draghi will think it easy by comparison to what he’s dealt with over the last eight years and fingers crossed, the next President won’t have to rely on a now infamous, euro-saving, “whatever it takes” speech, to prevent the collapse of the common currency.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam