Thu, Aug 18, 2022 @ 16:39 GMT
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What To Expect From The ECB?

ECB Faces Cat & Mouse Game
Well-Tailored Statement
ECB May Go On Autopilot in January
Euro Bets Skewed For Bullish Move

We have less than four months left before the ECB asset purchase program ends, and the president of the ECB, Mario Draghi is reticent about the future path of the monetary policy. Month after month, the tapering process has been delayed while the recovery in the Eurozone has strengthened. The patient is not sick and there is no need for the lifeline. Investors are forced to take their best guess and their bets are skewed by their perspective due to lack of information and clarity from the ECB in relation to their monetary policy.

ECB Faces Cat & Mouse Game

The Euro has touched the high of 1.20 against the dollar and its strength against the Sterling is even more remarkable. Not only investors but also some officials of the European central bank are concerned about the currency’s strength. It will not be far stretched to say that the ECB is in a cat and mouse chase game. The bank would have sufficient excuses if it wants to keep delaying the tightening of the monetary process. However, there is a lack of evidence that the strength of the currency in the medium term will choke the economy. The ECB should keep their focus on the domestic demand and not be played by the strength of the currency as that would be misleading.

Well-Tailored Statement

Forget about pulling a rabbit out of the hat, when it comes to the ECB’s meeting on Thursday, I expect the statement to be immensely tailor-made. It is widely expected that the ECB would say that they have officially discussed the process of tapering in the light of their latest economic projections. The probabilities are high that there would not be any loose ends because I expect Draghi to learn from his previous mistake. On the outset it may look as if the statement was very vague but in reality it would be highly tailor-made. The reason is that the bank would like to have their options open due to the nature of complexity involved in this task.

ECB May Go On Autopilot in January

It is highly likely that the ECB would adopt the same path as the Fed did. The bank is going to be gradual with its tapering process and it would only ease off the gas slowly and in a systematic way. These are unusual dynamics and the bank would prefer to rather play it safe than sorry.

Euro Bets Skewed For Bullish Move

The euro-dollar one week risk reversal shows that traders are highly bullish and they are anticipating the euro-dollar pair to move higher.

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