Here's a brief preview ahead of the big ECB event

By and large we pretty much know the expected menu for tomorrow.

The euro has obviously found a comfortable level and is not getting overexcited like it did in December. There is still scope to see a big move if the ECB go above and beyond expectations or fail to deliver.

The things we know

  • Draghi has consistently been strong in his rhetoric that they are prepared to do whatever it takes to stop inflation expectations falling and second round effects from taking root
  • The euro has bounced back from Fed and ECB expectations and actions
  • There seems (until now maybe) to be an unwillingness to pull the trigger on more QE and rather push the money around wider
  • Going further down the negative rate rabbit hole brings more bonds back above the threshold
  • It's never usually wise to bet against Draghi

Things we don't know

  • We don't know how much further the ECB can, or are willing, to go
  • We don't know what other policy tools they may have up their sleeves

We've got some big risk if's and but's for this meeting and that's going to make trading it hard. This is one of those times when holding a position over the event is more or less a gamble. Yes we have the possibility that Draghi delivers but that's netted off against the markets expectations, which are fairly wide.

The most important thing to remember is that all we'll get at 12.45GMT is the interest rate announcement and it will be the presser where we get further details. That presents a very risky moment as after the announcement we're in limbo. For example, the dovishness of a further cut to the deposit rate may be countered by the news that it's going to be tiered, or something else that limits the headline impact, or we get more QE. It can all happen at the drop of a hat by the silver tongued master.

I'm more inclined to not trade the news over the event but to wait and see if any of the news is a game changer that could affect any of the wider price levels. I think the best trade will be to let the market mess around with the release and presser and then step in with a calmer head when the picture is clearer.

Whatever happens it's going to be fun but dangerous so take care and good luck.