It’s been a steady, albeit unremarkable, start to trading on Thursday, with risk appetite gradually improving ahead of today’s ECB decision.

The euro has been well bid this morning ahead of the ECBs interest rate decision and Mario Draghi’s press conference, with traders either anticipating taper talk or testing the central banks resolve as it prepares to further wind down its quantitative easing program. The current program expires at the end of the year and there is a clear desire to reduce it to zero and normalize monetary policy, but with this comes many obstacles, most notably the goal of 2% inflation.

Not only is the ECB far from achieving this target but this year’s appreciation of the euro has made the job of do so all the more difficult. The euro is up more than 13% against the dollar this year and more than 7% against the pound which will continue to weigh on inflation going forward. The issue for the ECB is that by announcing a reduction in stimulus, it risks exacerbating the problem by driving the euro higher again, assuming of course that this isn’t already priced in.

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The ECB is clearly already uncomfortable with the gains that the currency has made – as seen by repeated mentions of it and coincidentally timed “ECB source” leaks referencing QE – to the point that it is now expected to hold off on announcing an extension to the program until later in the year. The likelihood remains that another reduction will be announced now either in October or December with the goal or ending the program at the end of next year but policy makers are clearly being very careful about how and when they announce it so as to avoid any unwanted euro appreciation.

I therefore expect ECB President Mario Draghi to be very dovish today and possibly even leave the door ajar to no tapering to take place when the extension is announced, even if that is extremely unlikely to happen. The goal of this will be simply to take the pressure off the currency ahead of the announcement later in the year and manage its ascent. Whether traders buy it or not is another question and we’re already seeing some appetite this morning to test the 1.20 level that has so far held strong.

With risk appetite gradually improving and geopolitics becoming less of a drag on markets, for now, focus is switching back to fundamentals and today’s US data will give us some insight into just that. Weekly jobless claims, non-farm productivity and unit labor costs data will all be released ahead of the open on Wall Street today and we’ll also get crude inventory numbers from EIA. A build of a little over 4 million barrels is expected this week with the effects of Hurricane Harvey driving much of the gains.

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