Attention now turns to the ECB

Very few expect ECB to act today, most see a decision coming in December or January. But markets are highly sensitive to hints and Draghi is bound to be pressed on it by journalists. Some argue that QE is worsening the deflationary risks it seeks to eliminate (Weidmann argues that keeping the cost of money so low maintains "zombie" companies that should have gone out of business). But that is certainly not the view of the majority on the GovCo. 

The ECB has started asking ad hoc questions on the asset purchase programme (APP) in its Bank Lending Survey and the October survey released earlier this week had a clear conclusion: a rising number of senior loan officers say they have "used funds generated by the ECB's APP" to grant loans to enterprises/households while the ECB says "these results confirm that the APP continues to support lending to the Euro area." Given that assessment, coupled with signs of tightening financial conditions, further asset purchases seem the most likely option for the ECB. 

The ECB could increase the monthly pace of purchases, but in that case it would have less room to extend the period of purchases (unless it also widens the scope of assets). The ECB has room to extend for another year past September 2016 under the current regime. Trade-weighted EUR has stabilized over the last month (partly because of expectations for ECB action), but it can stay that way for now. 

"Trade-wise since the September FOMC, we have been suggesting short EUR/USD vol rather than directional bets. If today's outcome is just a hint of more to come in December, there should still be room for vols to go lower", says RBC Capital Markets.