With the CHF cap removed, a large buyer of the Euro (namely the SNB) has suddenly left the market, leading to speculations whether they know something about the size of the ECB plans that made them decide to instantly stop buying. It has been reported that Draghi already met with Angela Merkel and her finance minister to outline the plans and Monday French President François Hollande stated the ECB will decide to buy government debt later this week. Add to that a favourable ruling by the European Courts of Justice and the surprise decision by the Danish on Monday to cut its deposit rate (after interventions in the market proved insufficient). I have said it before and I will say it again: those who believe is not going to happen, do so at their own risk.
Although the size of the government bond buying is not yet known, it is expected to be large-scale, large enough to have a chance at driving the in the Eurozone from the current negative territory towards the required 2.0%. Should indeed a full scale be announced (there is talk of as much as EUR 1 trl of bond purchases over two years), I believe the EU pair will dump and immediately start a further descent. In terms of predictions how much EU can fall with a full , I have read anything from 115, to 110, to 105 to even parity over time. However, if a smaller than expected would be announced (<= EUR 500bn), the pair might start a relief rally.
If this happens, it would not change my fundamental belief in the bearishness of EU, given the fact that the two central banks (ECB and FeD) would still have divergent policies keeping this pair under selling pressure long term, eventually grinding the price down further. In that situation, one of these central banks would have announced the printing of large amounts of money while the other has plans for a mid-year interest-rate increase. So regardless of the exact size of a QE: I was, am and remain on the fundamental direction of EU, although obviously with a full blown the price will grind down faster and reach lower levels than with a lighter form of .
Resuming: I am looking forward to the ECB press conference on Thursday, I expect them to announce and therefore have a outlook on EU.
-Aggressive traders, expecting a full blown (>= EUR 1 trl ), can position themselves beforehand for a news trade with a directional bias in the anticipation the announcement will make the pair drop immediately.
-Conservative traders, expecting a lighter form of (<= EUR 500bn), can first wait for the news event itself to happen and then sell any rallies that might occur afterwards to get in on the at a good price.
UPDATE: ECB did announce an expanded asset purchase programme, for a monthly amount of €60 billion. The programme will start March 2015 and last until September 2016, aiming to achieve rates of 2.0%. As this full-blown was larger than expected, the EU pair dumped immediately (as I predicted would happen in that scenario) and is currently down 200 pips compared to when the press conference started. The 115, 114, 113, 112, 111, 109 and 108 handles have been broken and the pair is making new lows.