ECB policy decision: Patience till December

EURUSD is expected to remain relatively choppy as we approach the December ECB event risk and see any squeeze higher as an opportunity to re-initiate short EURUSD positions ahead of the meeting. Indeed, the ECB further prepared markets for additional policy easing last week. President Draghi re-iterated the ECB's "whatever it takes" commitment, emphasizing that it possesses the necessary tools to bring inflation back to target and re-anchor inflation expectations. 

"We continue to expect an extension of the current QE program and a 10bp deposit rate cut to -30bp. Yet, with EONIA forwards pricing more than a 10bp cut in December we see a risk for EURUSD 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.

Data this week will likely provide little impetus for the EUR to strengthen. Euro area flash composite PMI (Monday) is expected to moderate in November as manufacturing posts a slight drop and services confidence holds firm. We should see some decline in German confidence (Tuesday) due to the emerging market slowdown, disappointing latest activity data and the VW scandal and expect German final GDP (Tuesday) to remain unchanged at 0.3% q/q.