The US dollar is trading with a heavier bias today amid some last minute position squaring ahead of the key events of the week, which are stacked in the second half. The ECB meeting and US jobs data are the two most important events in a jam packed week for most participants.  

The recent pattern has been for new lows in the euro to be greeted with a bit of profit-taking. This pattern is holding. New lows were made yesterday just below $1.0560, and short-covering lifted it to nearly $1.0620 in early Europe when sellers re-emerged. There is a large option expiry (~2.1 bln) at $1.06 later today.  

The eurozone manufacturing PMI of 52.8 matched the flash reading, though the country breakdown seemed more favorable. Germany’s flash reading of 52.6 was upgraded to 52.9. This was blunted by France’s slippage to 50.6 from 50.8. However, Italy’s manufacturing PMI came in at 54.9 from 54.1. The consensus was for 54.2. Spain’s reading rose to 53.1 from 51.3, surpassing the consensus expectation for 54.2.  

Separately, Germany reported a new cyclical low in unemployment (6.3%) and Italy reported its unemployment rate slipped to 11.5% from 11.8% (that was revised to 11.6%). The first estimate of Italy’s Q3 GDP rose 0.2% as expected. The year-over-year rate stands at 0.8% (rather than 0.9% the consensus forecast).  

All this has very little bearing on expectations for Thursday’s ECB meeting. A cut in the already negative deposit rate and an extension of the program into 2017 is widely expected. Increasing the pace of the purchases and including a new asset classes into the program are possible but there appears to be somewhat less of a consensus. With the German curve yielding less than minus 30 bp out to four years, a 10 bp cut in the deposit rate may not free up much more assets that can be purchased, suggesting something more is needed for the ECB to get ahead of the curve of expectations that Draghi’s dovish remarks fanned. At the same time, many participants realize that more often than not Draghi has surprised the market with the extent of his dovishness, and are reluctant to get bitten by the same dog again.