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.

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