Market to continue to contemplate further ECB QE

In a quiet data week, the FX market is likely to continue to contemplate further ECB QE, given recent Chinese growth concerns and falls in market-based measures of euro area inflation expectations. 

The ECB opened the door to further QE at last week's meeting by increasing the issue share limit for purchases under the Public Sector Purchase Programme (PSPP) from 25% to 33% (subject to case-by-case verification that this would not create blocking minority power). 

"We continue to expect the ECB to announce before year-end an extension of the current QE programme beyond September 2016; this view was encouraged by sizeable downward revisions to the ECB's inflation forecast for 2016 and 2017 to 1.1% and 1.7%, respectively. As such, we continue to expect further material EUR depreciation and recommend remaining short EURUSD. In terms of data this week, we and the consensus expect final Q2 euro area GDP (Tuesday) to be confirmed at 0.3% q/q," according to Barclays.