ECB to deliver a 10bp rate cut?

This week's ECB meeting will be main driver for EUR/USD. A rate cut is broadly expected, along with an extension in the QE programme.

The comments passed by ECB in its recent meeting about the Euro Area inflation, have increased the expectations by the market. The EONIA forwards pricing more than a 10 bp cut.

"Given increased expectations, we see a risk for EUR/USD to squeeze higher should the ECB disappoint. We argue that the ECB will not want to risk an unwinding of the recent rebound in inflation expectations and a squeeze higher in the EUR, which would ultimately tighten financial conditions through the rates and FX channels", says Barclays in a research note. 

Any EUR/USD upside, in case the ECB disappoints by delivering at par with market expectations, will likely be short-lived whereas the risks of more aggressive ECB easing is now higher.