ECB Preview: EUR/USD Recovery Vulnerable To QE Extension/Adjustment

- European Central Bank (ECB) to Retain Zero-Interest Rate Policy (ZIRP), QE Program.

- Will the Governing Council Extend/Adjust the Asset-Purchase Program?

Trading the News: European Central Bank (ECB) Interest Rate Decision

According to a Bloomberg News survey, all of the 58 economists polled forecast the European Central Bank (ECB) to preserve the zero-interest rate policy (ZIRP) in December, but the last interest rate decision for 2016 may shake up the euro-dollar exchange rate as President Mario Draghi and Co. appear to be on course to implement a more accommodative stance.

What’s Expected:

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Why Is This Event Important:

With the ECB talking down concerns for an abrupt end to the quantitative-easing (QE) program, there’s growing speculation the Governing Council will extend the deadline for its non-standard measure beyond March 2017, and the central bank may also adjust the guidelines for its asset-purchase program in an effort to ‘secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term.’ However, more of the same from the ECB may spark a choppy reaction in EUR/USD as it paves the way for a ‘taper-tantrum,’ and the single-currency may stage a larger recovery going into the end of the year should the central bank merely attempt to buy more time.

Expectations: Bearish Argument/Scenario

The ECB may fine-tune its non-standard measures in an effort to boost confidence and further support lending to small and medium-sized enterprises (SME), and a move to further expand the central bank’s balance sheet may drag on EUR/USD especially as the Federal Reserve appears to be on course to deliver a December rate-hike.