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Markets expect the European Central Bank to announce a gradual reduction in its monthly asset purchases at the next meeting on Thursday, September 7, but there is a heightened chance the call will be delayed until October when Siegenthaler expects the European Central Bank to announce a reduction to €40bn a month in purchases (from the current €60bn).
Nearly 80 percent of respondents in a Bloomberg News survey of economists agreed that the European Central Bank would reduce its monthly purchases from January.
That divergence would go to the heart of the dilemma facing Draghi as he decides whether to extend or wind down the bank's asset purchases: eurozone economic growth is on its best run in a decade yet inflation will miss the target that forms the core of the ECB's mandate for years to come.
BTMU Research: The ECB is most likely to use the meeting to set up the unveiling of detailed QE tapering plans at their following meeting in late October.
"We have been caught off guard by the strength". "They're already below their [inflation] target, they have to acknowledge there are further downside risks to their inflation outlook because of the strong euro". Yet, inflation remains stubbornly low.
However, this year's surge in the euro exchange rate complicates the ECB's exit strategy.
The EUR USD exchange rate has edged higher despite mixed demand for the Euro and underwhelming Eurozone ecostats, as investors express disappointing with low Fed rate hike bets and poor US goods orders data.More news: Attorney General Files Lawsuit to Block Trump's DACA Repeal
"As far as non-conventional monetary policy measures are concerned, we confirm that our net asset purchases, at the current monthly rate of Euro 60 billion, should be realized until the end of December 2017 or beyond if necessary".
Still, ECB comments will be scrutinized for any clues on the timing and scale of a taper. The Governing Council has been presented with documents outlining multiple scenarios for adjusting quantitative easing, according to euro-area officials familiar with the matter.
Certainly there are differences of opinion whether EURUSD at 1.2 should be a concern.
In the end, a compromise is to be sought, with Draghi vying to get the most for the deficitary Eurozone countries, as he has been doing all along his term as head of European Central Bank.
This environment has profound implications for markets - we now expect little movement in the USA curve until year -end, and only very measured ones in Europe, as the European Central Bank (ECB) strives to implement as dovish a tapering pattern as possible, which leads us to believe that equities should fare better in Europe than in the US. We expect them to remain at their current levels over an extended period of time, well beyond the time horizon for our net asset purchases.
ANZ Research: The ECB meets on Thursday amid a firming economy, recent upgrading of forward guidance and the approaching end of the current QE plan. Traders should be prepared for two-sided volatility on Thursday.
Fresh inflation forecasts from the Bank's economists, which will be released during Draghi's press conference Thursday, are expected to trim June's projections of a 2017 average of 1.5% and a 2018 dip to 1.3%, as those figures were based on an euro/dollar rate in the 1.09 to 1.11 region and Brent crude prices in the $51.00 range.
The Japanese yen was little changed, gold held firm to trade near its highest level in almost a year on safe-haven demand and copper hovered near three-year high on expectations of solid economic growth in China, while crude oil prices traded mixed amid easing supply concerns.