Most of the opinion pieces I’ve read from the interbank analysts are of the opinion that the ECB will introduce some special measures rather than cutting rates. This was Jamie’s piece last night on what’s likely to happen if the ECB does nothing. If they cut rates by 25bps then we may see a short-term sell-off in the EUR but I’d expect it to be limited, more of a sell-rumour-buy-fact type of move. A 50 bps rate cut which had been spoken about last week, looks very unlikely but you just never know how Mr Trichet would like to exit the stage. Depending on what the special measures are, the EUR would more than likely get a lift.
I’d look to the market for clues as to how it takes the news. The range to watch is 1.3230/1.3390 and a clean break either side will set the tone for the next move.
