Further ECB easing likely in October

Although President Draghi said during his Q&A that a rate cut had not been discussed, the market will likely scrutinize any statement regarding the lower bound for interest rates, as a cut in the rate of the deposit facility could be one powerful option to re-anchor inflation expectation through its impact on the front end of the yield curve and the subsequent weakening of the EUR.

Amid a relatively light data calendar in Europe, the release of the ECB's September policy meeting minutes will attract market interest. The focus will be on potential options discussed by the GC to ease policy further.

With soft inflationary pressures dragging inflation expectations lower and with soft US data likely pushing Fed rate hike expectations further out, further EUR strength and consequent tightening of euro area financial conditions, will unlikely be tolerated by the ECB. 

"Further ECB easing is expected to be announced as early as the October ECB meeting in the form of a time extension to the QE program and continue to forecast EUR depreciation in the coming quarters", states Barclays.

On the data front, September PMI data is expected to remain unchanged and look for German factory orders to have rebounded in August after a sharp drop in July, although not fully catching up to the record high of June. 

"Moreover, German IP is expected to have increased 0.6% m/m in August, in line with the increase in manufacturing PMI. Finally, French IP is likely to rise by 0.3% m/m in August but only partially offsetting the July 0.8% m/m drop. In turn, the carryover would only slight improve to -0.5% for Q3 (after -0.7% in Q2). In Italy, industrial production is likely to come off in August (-0.5% m/m)", added Barclays.