On the 22nd of July, the ECB meet again and speculation will once again rise about whether the €1.85 billion emergency asset purchase program will continue. This question is of interest to currency traders as easing of this program is the forts step prior to rising interest rates and that sends the euro higher. So, let’s look at some of the issues.

When is the COVID-19 crisis over?

Well, it depends who you ask.

For Germany’s Weidmann he wants to discuss conditions under which emergency measures are ended and preconditions for concluding net PEPP are that all major restrictions are lifted and the recovery is solid. He cannot determine the exit from crisis mode this far in advance; PEPP could be lowered in steps. The coming year would not count as a crisis year if assumptions about the pandemic are confirmed. So, for hawkish Weidmann the recovery is due next year in Q1.

On the other side of the spectrum, Fabio Panetta wants some elements of the PEPP program to continue indefinitely. He thinks the ECB should look to retain the “unconventional flexibility” that has served the Bank well during the crisis. Panetta thinks there needs to be the confidence that combined policy support will not be withdrawn prematurely/ On the current policy trajectory, the likelihood that demand in the euro area will be strong enough to test the supply constraints of the economy, beyond short-term bottlenecks, does not look as high as in the United States.

The key debate point

Watch out for discussions around the ongoing rules concerning bond purchases. The ECB is usually bound by a set of rules when purchasing bonds, but these rules have been suspended during the COVID-19 crisis. The rules include guidance around how much debt can be bought in relation to the size of a nation’s debt. Also, that investment-grade bonds only can be bought. This poses an ongoing challenge, especially as Greek bonds are still labelled as ‘junk’. So, for doves like Panetta they would like to see some of the present flexibility ongoing.

The takeaway

  • Watch for any hints that dovish ECB board members are moving towards Q1 2022 or Q4 2021 bond tapering.
  • Watch for debate surrounding the rules around bond purchases post Pandemic.
  • Watch for signs of growing confidence that the COVID-19 crisis is over.


A slightly disappointing NFP print last Friday, with unemployment ticking a touch higher, send the USD lower and put in some daily reversal candles on the major pairs. The key trend line on the daily marked below and the current battle area around the1.1800/1.17000 support zone.