ECB's QE to be extended beyond September 2016

The ECB is only a third into its QE purchases and a number of ECB members have recently repeated the message from the September meeting that it is too early to decide whether more easing is needed.

The ECB is currently focusing on the lower cost of borrowing and better availability of credit from the monetary policy transmission. However, ECB members also see downside risk to inflation from the emerging market turmoil, the stronger euro and the lower oil price, but despite the latest weak German data, the impact is still judged to be uncertain.

Deflation print in September should not be enough for ECB to ease again. Draghi said in September that 'we may see negative numbers of inflation in the coming months. The Governing Council tends to think that these are transitory effects, mostly due to oil price effects'.

"The ECB is likely to extend its QE purchases beyond September 2016, but it would not be announced before the December meeting. The ECB may stay on hold until Q1 16. Three potential triggers are seen for more easing from the ECB: 1) the growth outlook deteriorates, 2) the ECB lowers its headline inflation projection, and/or 3) the ECB lowers its core inflation forecast", says Danske Bank.

In FX markets, EUR/USD is likely to be little changed with risks tilted to the upside, as the ECB fails to deliver fuel to expectations on ECB-Fed divergence for now.