The ECB has preempted the market with more easing this month, but how much will they deliver and what can we expect to see?
The quick take on this is that don't expect any change to key rates by the ECB tomorrow. They have made that rather clear, and that the tools that they are most likely going to play around with are the PEPP and TLTROs instead.
So, what is the base case going into tomorrow's decision?
An extension of PEPP stimulus is a given at this point but the main question is whether it will be for six months or twelve months.
The latter looks more likely as it will just be a one and done kick, but it does raise questions about the ECB outlook and what message the central bank is sending about the euro area economy for the next one-and-a-half years.
Policymakers are also likely to also agree on enhancing TLRTO conditions and perhaps even add to QE, but none of this should be relatively market-moving for the most part given that this has been very much preempted already since October.
Besides that, the ECB may look into tweaking its rate tiering mechanism but this is very much just a technical adjustment to help with banks. I wouldn't be surprised if they skip the option to go down this path tomorrow though.
That is basically it. So, in terms of key policy decisions, there is a lot to be expected but a lot of it has been sort of communicated already in the past few weeks.
Instead, I would argue that the more intriguing part of tomorrow's meeting will be the ECB projections, their messaging on the outlook/inflation, and any firm push back against the recent rise in the euro currency as of late.
Those points will likely have more of an impact on the single currency tomorrow and Lagarde will have a fine balancing act to not under-deliver on a dovish outlook to support the additional easing measures, while not wanting the euro to strengthen as well.
In any case, I would argue that any verbal push back by the ECB will continue to prove to be a speed bump rather than a firm barrier to stop the advance in the euro - not when the dollar is finding itself in a rather vulnerable spot in the bigger picture.