In a nutshell, short-term gain and long-term pain.
EUR/USD may rally in knee-jerk fashion on no move from the ECB but a lack of action amid the greatest sovereign debt crisis in history and the potential for the greatest banking crisis in history would be seen as a dereliction of duty.
If the ECB does LTRO (long-term refi operations) of 1-year with full allotment, that would be the European version of QE. Banking shares should get a lift on such an action, so the euro could steady in the near-term. I don’t see a great deal of reason to buy the euro on such a move, but it may give nears a better level to sell.
If they cut 25 or 50 bp and introduce LTRO, then I think the market will view that as a panic move (which it is but there is every reason to panic). Lower euro, under that scenario, I’d guess.
