Euro Traders Bet on Weakness Before ECB Rate Decision

2015-10-22 07:48:00 Ilya Spivak

Talking Points:

Traders Bet Euro Weakness Ahead of ECB Policy Monetary Announcement
Deposit Rate Cut Hint or Fully Neutral Posture to Trigger Greatest Volatility
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All eyes are on the monetary policy announcement from the European Central Bank. Economists expect no changes this time around, but markets seem positioned for a dovish outcome, perhaps via rhetoric setting the stage for stimulus expansion in December.

Options positioning has shown an increasingly negative skew since the final set of September’s Eurozone CPI figures confirmed price growth dipped back into deflationary territory. The premium traders are willing to pay for the right to sell the Euro versus an equivalent right to buy has jumped to 0.63, the highest in over three months.

That suggests investors expect the single currency to head lower, which seemingly foreshadows a dovish turn in the ECB’s posture. A steady downward drift in borrowing costs implied by Eonia futures reinforces the idea that markets are setting up for stimulus expansion.

Expanding the range of QE-eligible assets and/or extending the expiration date of the current program beyond September 2016 are probably priced in already. A nod toward such a move in ECB President Draghi’s post-announcement press conference punish the Euro in the near term, but lasting follow-through might prove challenging.

Lasting downside momentum is likely to follow if Draghi hints at a possible reduction in the deposit rate having previously suggested that the current -0.2 setting represents a floor. Alternatively, a neutral posture would clash with market pricing and send investors scrambling to reposition, pushing the common unit swiftly higher.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:00	NZD	ANZ Job Advertisements (MoM) (SEP)	2.1%	-	-1.5%
0:30	AUD	NAB Business Confidence (3Q)	0	-	4
1:45	CNY	MNI Business Confidence (OCT)	55.6	-	51.3

European Session

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
6:45	EUR	Business Survey Overall Demand (OCT)	5 (A)	3	Low
6:45	EUR	Business Confidence (OCT)	101 (A)	100	Low
6:45	EUR	Manufacturing Confidence (OCT)	103 (A)	104	Low
6:45	EUR	Production Outlook Indicator (OCT)	2 (A)	5	Low
6:45	EUR	Own-Company Production Outlook (OCT)	13 (A)	14	Low
8:20	GBP	BOE's Cunliffe Speaks at Event in London	-	-	Medium
8:30	GBP	Retail Sales Ex Auto Fuel (MoM) (SEP)	0.4%	0.1%	Medium
8:30	GBP	Retail Sales Ex Auto Fuel (YoY) (SEP)	4.7%	3.5%	Medium
8:30	GBP	Retail Sales Inc Auto Fuel (MoM) (SEP)	0.4%	0.2%	Medium
8:30	GBP	Retail Sales Inc Auto Fuel (YoY) (SEP)	4.8%	3.7%	Medium
11:45	EUR	ECB Main Refinancing Rate	0.05%	0.05%	High
11:45	EUR	ECB Deposit Facility Rate	-0.20%	-0.20%	High
11:45	EUR	ECB Marginal Lending Facility	0.30%	0.30%	High
12:30	EUR	ECB Pres. Draghi Holds Press Conference	-	-	High