Can ECB surprise market today - Part 2

In first part of this article, we discussed over, how market has ample time to speculate over some big surprise from European Central Bank, which is quite evident from Euro's move of more against Dollar (Dollar leg also contributed). We warned the ECB better not disappoint, which could risk some of the goodies done so far as well as shock the Euro to upside (very large, due to extreme one sided positioning) and shared our (FxWirePro) expectations (if u call it predictions) from ECB meeting today.

To know if ECB has overwhelmed or underwhelmed, one need to know the average consensus of the market. Hence in this part, we take up on that by sharing general market consensus, as well as takeaways and thoughts from key analysts.

Tools of ECB - (rewriting in this part too, for better reference)

ECB has lots of tools at its disposal. Deposit rates (-0.2% at present), duration of asset purchase program (as of now till September 2016) and pace of purchase (€ 60 billion/month is current pace).

It could also come up, with some new tool or idea, which would be rocking.

General Market Consensus -

Average market consensus expects 13.5 basis points rate cut from European Central Bank. So a 10 basis points cut could turn out to be disappointment.

Minimum expectation for increase in purchase program's time horizon is 3 months, though average is more towards 6 months. Any number above that would be sufficient.

Taking the average consensus, ECB is expected to increase stimulus by € 8 billion at least (better take 10). So ECB need to come up with higher than €10 billion to surprise market on an average.

Market consensus is calculated assuming ECB will act on all three tools. The expectation numbers could move up if it acts on less than three tools.

Analysts' expectations -

Rabobank thinks, ECB will act on all three tools. 15 basis points rate cut, couple with extension of QE duration and minimum €20 billion increase in purchase pace.

Analysts at RBC think, 20 basis points rate cut, probable use of tiered system in deposit rates. Six months extension of asset purchase but no change in purchase pace. Possible expand the eligible assets.

UBS thinks, 10 basis points rate cut, coupled with 3-6 months increase in asset purchase program.

Analysts at J.P. Morgan asset management think, expansion of QE program and 10 basis points cut.

Euro is slowly grinding lower, heading into ECB trading at 1.055 against Dollar.