Draghi Says Nothing to Undermine Expectations of New Action in December

ECB President Draghi said nothing to dampen expectations that in
December, with the cover of new staff forecasts, the asset purchase program
will likely be extended. 
This is
a function of two assessments. First, risks are
to the downside.  Second, there are not convincing signs of an upward trend in underlying inflation.

The euro initially slipped toward session lows, but when Draghi shared
that an extension of QE was not discussed
(nor was tapering, the euro rallied.
not a significant.  It means nothing about what the ECB may do
in December.   There are two
months before that meeting, and this is
very much part of the ECB’s modus operandi.  Make a decision only when
necessary.  The squeeze higher quick ran out of steam and the euro
returned toward its lows. 

The December meeting brings an update on the Eurosystem committees
reviewing the ECB’s tools, and there will
be new staff forecasts.
  Sequentially, these are important to have an
informed discussion that will lead to new actions.  Draghi did reiterate
that an abrupt end to the purchases was unlikely, which means tapering is still
the most likely scenario.    Draghi left no doubt that December
is crunch time:  “It’s quite clear our decisions in December will
tell you what we are doing in the coming months.”

As widely anticipated there is very little new from the ECB today. 
Market participants are unlikely to change views of the trajectory of ECB
policy.  An extension of QE is likely, and most think by six months. 
A break of $1.0950 may spur a test on the Brexit low near $1.0915.  A move
below would target $1.08.   In contrast to Draghi, recent comments by the
Fed’s Fischer and Dudley keep expectations of a Us hike in December very much
alive, barring a downside shock in the coming period.  Last year finished
with a focus on divergence.  This year is
in the same direction.  


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