ECB likely to stay on hold till December

Further easing could also follow if sentiment in the euro area deteriorates on the back of the uncertainty in China and emerging markets. Today's message from the ECB was that it is too early for the ECB to conclude whether or not more easing is needed on the back of the latest uncertainty. 

"In terms of timing, the amount of data ahead of the October ECB meeting is limited and it is likely the ECB will stay on hold until the December meeting and possibly stick to verbal intervention until 2016", says Danske Bank.

In terms of available instruments, Draghi put most focus on the flexibility of the QE programme, as he emphasised it could be extended beyond September 2016 and/or the ECB could increase monthly purchases. In terms of further cuts in policy rates, Draghi said that the ECB did not discuss whether it had reached the lower bound on policy rates and based on this we stick to our expectation that it is more likely that the ECB will extend its QE programme than that it will cut policy rates.

"The dovish message was well received by the market, with a broad-based rally in fixed income driven by the 5Y and 10Y segment. The reaction to the change in the ISIN limits as well as the Governing Council is interpreted, judging it 'premature' to conclude on the downside effects on growth and inflation expectations as the market building up expectations for the QE programme to be scaled up or extended. This is a signal Draghi clearly wanted to send", added Danske Bank.