This is no time to taper, simply because of the challenging dynamics in the Eurozone. A premature taper, which a decision to this effect at this meeting would certainly only complicate the ECB's task of getting the EZ out of low and fundamentally banishing deflation risk.
Some have been discussing scenarios that aim to split the difference for the ECB for example purchases to a monthly pace of EUR 40-50 bn , but then extending the program for longer, say through Q1 2018. We think such proposals fail to take account of how sceptical markets have become where the ECB is concerned. After all the Dec '15 meeting and the misfire in March of this year have taught markets to be extremely sceptical as to the ECB's willingness and ability to ease.
Markets are putting more weight on the tapering signal rather than any kind of program extension. Upside is unlikely to extend much beyond 1.08. Markets may also be anticipating that the calm response to the weekends political events will encourage ECB to emphasize the limits to its intentions.
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