Elwin de Groot, Research Analyst at Rabobank, suggests that today it’s the ECB’s turn and one could almost hear the silence on European trading floors yesterday, as the Governing Council started their meeting in Frankfurt behind closed doors and market participants were taking their final positions. Key Quotes “Those doors will only open this afternoon for the regular press conference hosted by the ECB President. Will Mr. Draghi be able to inject fresh confidence after the market’s negative response to the ‘comprehensive’ easing package in December last year? Clearly, Mr. Draghi has not been the only central banker receiving the market’s ‘thumbs down’ verdict lately. That same fate also fell to Fed Chair Yellen in December when she announced the first Fed hike in more than years (admittedly, the market reacted negatively with a one-day delay) and BoJ governor Kuroda when he announced the BoJ’s first step into negative rates territory end-February (again, also with a delay). In other words, no matter whether a central bank announces a tightening or an easing move, the market tends to feel disappointed. That looks like a chronic depression and any doctor can tell you that cheering up a chronically depressed person takes more than just telling that person to “cheer up!” So whether Mr. Draghi will be able to buck the recent trend remains to be seen. No deposit rate cut and the euro will rise sharply. But too strong a deposit rate cut and the market may just as well switch into ‘risk-off’’ mode (with the euro up) on the assumption that this is just another leg in the currency war and no good news for financials either. Given this fine line, we expect a 10bp cut. Similarly, too small an expansion in QE (or no expansion at all) and the market will take that as evidence that divisions within the Council are stronger than Mr. Draghi wanted us to believe in the January press conference. Or, worse, the ECB now believes that its QE program is no longer effective in raising inflation expectations. Our base case is for a EUR10-20bn/mth expansion, with a removal of the deposit rate threshold being one option that could be politically ‘palatable’. We ran through several of the other options that the Governing Council have in our ECB-preview, but the list is far from exhaustive, which of course gives the ECB the option to come with a complex and ‘comprehensive’ package of measures that will drive any manically depressed to the wall.” For more information, read our latest forex news.