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This note was originally published October 01, 2014 at 11:13 in Macro

The ECB meets tomorrow to announce interest rate policy. While we expect that the rate cuts are behind us for the year, expect dovish commentary from ECB President Mario Draghi around the release of the bank's definition of the ABS purchase program as he tip toes around questioning on a (sovereign) QE program.

The data since last month’s meeting has only gotten worse:  Eurozone Manufacturing PMI was down in today's final reading at 50.3 (to a 14 month low) versus expectations of 50.5 and the initial reading of 50.5.  Additionally, yesterday’s release of initial September Eurozone CPI showed a 10bp decline to 0.3% Y/Y, suggesting to us that Draghi’s timetable of action may continue to be shortened as he battles to inflect disinflation.

Expect Euro Doves Tomorrow - zzz. eurozone pmi manu

On positioning, the EUR/USD has hit our immediate term TRADE oversold level of $1.26. From here we’ll be watching to see what Draghi delivers tomorrow, however the cross is squarely signaling bearish with its intermediate term TREND ($1.32) and long term TAIL ($1.34) duration levels broken.

Expect Euro Doves Tomorrow - vvv. EURusd

One of our fourth quarter Macro Tthemes includes #EuropeSlowing, which we sum up as:

  • Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth. 

-- Matthew Hedrick
Associate, Macro team