ECB's policy measures likely in Q1 16

The ECB lending survey showed further improvement in lending standards and demand in the next three months for companies. This bodes well for further acceleration in lending flows, which have only just turned in positive territory, lagging the recovery in household lending for which the survey showed ongoing strong demand and credit standards.

Notwithstanding these positive news, we believe the ECB's tone at its October meeting confirmed our initial stance that more easing is to come before the end of the year - especially given that some GC members hinted at easing as soon as October. In turn, we continue to expect the ECB to announce more QE before year-end by extending the PSPP programme 6-9 months beyond September 2016, thus keeping rates low for even longer.

"We remain of the view that a cut in the deposit rate is the most effective measure to counteract sharp euro appreciation. Therefore, we believe that its implementation depends on the evolution of the euro exchange rate. In the absence of any sharp appreciation, the ECB is expected to be cautious in its implementation - while maintaining the door open to such action - as a depo rate cut also potentially carries a very significant cost on financial institutions", states Commerzbank. 

Given the possible implications of Fed's monetary policy decision on the EUR/USD, it is believed that the calendar is another important element as the Fed decision comes systematically after the ECB's in December and in January. This would support the view that easing measures in December will be in the form of QE extension and that a deposit rate cut remains a live option likely to be deployed in Q1 16, especially if a dovish Fed in December would lead to a sharp appreciation of the euro, added Commerzbank.