Deal or real deal?

<p>The anticipation towards a policy meeting from the ECB has rarely been so pivotal for markets, making today’s policy decision and subsequent press conference a […]</p>

The anticipation towards a policy meeting from the ECB has rarely been so pivotal for markets, making today’s policy decision and subsequent press conference a major event for the FX market and the single currency, with tomorrow’s US jobs report another key release ahead of the FOMC meeting on September 13.

The market will be centred around ECB president Draghi’s press conference and the prospective bond purchase programme. Most analysts expect the president to announce a programme to buy front-end bonds of periphery sovereigns in significant size as long as prospective members seeking help agree to conditions.

There has been fierce opposition from Germany so there may be some sort of sterilised purchases that should appease the Bundesbank’s issues and let’s not forget Spain has not yet requested financial aid. Announcing that purchases will be sterilised should help address the Bundesbank’s concerns about debt monetisation.

Market expectations are extremely high (reflected in the recent euro rally) following media reports suggesting that debt purchases could be unlimited in size. The CFTC data shows us the market remains short the single currency so a positive outcome could see the euro trade higher but are we in a classic buy the rumour sell the fact scenario?

The timing of potential bond purchases isn’t likely to occur until the EU group meeting on  September 14 and the conditions that Spain and Italy are set are likely to be debated at length.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.