Positioning ahead of the meeting will ramp up across the global FX space as investors try to anticipate how the ECB will play this. It seems the ECB debate at the moment is between a sizeable program of around €500 billion euros or a more open-ended approach which allows the ECB to adjust the size and pace through the cycle.
It’s clear just looking at the stability in European bonds, particularly for the periphery, that investors are expecting something substantial at the ECB meeting next week. Analysts feel an open-ended approach won’t cut it and investors will be after an explicit approach detailing the size, pace and timing of purchases. Should the ECB disappoint next week, I would expect to see an unwind across the periphery.
Meanwhile, the euro is coming under pressure and is on the verge of breaking January 8 lows in the $1.175 region against the greenback. Traders will be eyeing momentum plays and a close below $1.175 is likely to lead to an acceleration of losses for the pair.