The divergence of monetary policy is discounted, they argued. Ahead of next week’s big events, which include the IMF’s SDR decision, the ECB meeting, OPEC meeting, and the US jobs data, the euro, against which speculators have amassed a large short position, just shy of a record,  were supposed to be content.

The euro did gain almost a cent between Monday’s low when it briefly dipped below $1.0600 and today’s high, which stopped shy of $1.0690 in early Europe. However, it was greeted with fresh selling amid reports suggesting the ECB is preparing to throw everything but the proverbial kitchen sink into its unorthodox monetary policy. The latest reports suggest that a two-tiered negative deposit rate and the purchases of bank loans that are at risk of non-performing are under consideration.  

A two-tiered negative deposit rate, which would ostensibly punish large depositors at the ECB over small depositors is likely to be resisted by Germany and France whose banks are the largest users of the ECB’s facility. Purchases of loans at risk seems like a non-starter for a number of reasons, some technical, like pricing such loans, and some based on principle, like a reluctance to take measures that so overtly look like a deterioration in the quality of the central bank’s balance sheet. The BOJ may be comfortably buying a range of assets, including ETFs, REITS, but the ECB has preferred the course the Federal Reserve and the BOE, which is to buy the risk-free assets–sovereign bonds and agencies.

Even if these latest ideas are not very likely to be implemented, they are important. They show why claims that “it is all priced in” are misleading. The market does not know what the ECB will do next week. The ECB itself may not know. There are four broad categories of action:  the deposit rate, the composition of what is being bought, the pace of the purchases, and the duration of the program.  On top of this there is scar tissue–in the sense that the market often has under-estimated the dovishness of Draghi.