ECB meeting preview: will Mario Draghi go out with a bang?

With the ECB having implemented a host of easing measures last time, will Draghi make any changes in his final meeting as ECB governor?

Thursday’s European Central Bank (ECB) meeting represents Mario Draghi’s last stand as governor, with the Italian finally stepping down after a tumultuous tenure at the top. This meeting likely to be light on monetary adjustments, with the raft of easing measures implemented at the last meeting likely to dampen expectations this time around. Instead this meeting is expected to be as much about giving Draghi a good send off as the outlook for monetary policy itself.

Could the ECB move rates?

Last month’s monetary policy shift took some by surprise, with the committee agreeing upon a raft of measures that include lower rates and the reintroduction of quantitative easing. However, for many this may be perceived as overzealous, with a third of the votes going against the introduction of a new quantitative easing (QE) programme. That includes the top central bankers from both Germany and France. This has added to the feeling that we could see some of those prior measures reversed, shifting market expectations in the process.

The Reuters interest rate probabilities point towards a 23% chance that the ECB will raise rates at this meeting, feeding off the divisions evident within the committee. The table below highlights the current rate expectations from Reuters, signalling that there is a current 77% chance that the bank will maintain rates at the current level.

What about QE?

The ECB announced that a new round of QE will be implemented as of November, with the bank kicking off an open-ended programme of asset purchases amounting to €20 billion per month. There is likely to be a focus on explaining the finer details of this policy, including a likely rule change to allow for further purchases of German bonds.

Where now for the euro?

It seems unlikely that we will see the bank raise rates, in a move which would no doubt see further upside for the euro. EUR/USD has enjoyed a bullish period over the course of October thus far, with the pair breaking through the $1.1111 resistance to bring about a wider retracement zone. That breakout does point towards a likely continuation higher. However, as we move into the 61.8%-76.4% retracement zone, it makes sense to look out for potential bearish signals around $1.1208-$1.1286.


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