Next week brings the highly-awaited rate decision from the European Central Bank in which markets may finally hear what the ECB plans to do with their stimulus program beyond the current December expiration. This has been a brewing theme for much of the year: At the ECB meeting in April, just after the first round of French elections resolved in a rather market-friendly manner, ECB President Mario Draghi was directly asked what the bank might do with QE when the program was set to expire in December, almost 8 months away. At the time, growth and inflation had begun to show with a bit more consistency, leading to the idea that the massive amounts of liquidity pumped into the European financial system were finally ‘working’ to drive inflation-higher.

Mr. Draghi replied that the ECB hadn’t even discussed the prospect of stimulus exit. And a Euro that had been bid-higher on the prospect of an earlier stimulus exit retreated back to support, and stayed there for about two weeks before bulls came back-in. At the June ECB rate decision – the same thing; Mario Draghi was asked whether the ECB had discussed stimulus exit and when he replied that they hadn’t, EUR/USD moved back down to support, worked around that level for a couple of weeks before bulls finally re-grabbed control.

EUR/USD Daily: April, June ECB Sees Draghi’s Deferrals Soften the Euro for ~2 Weeks

Chart prepared by James Stanley

This happened again in July, but the market response was far different. Rather than pushing EUR/USD back-down to support as we’d seen at the previous two ECB meetings; bulls drove prices higher, running the pair up to fresh annual highs. But – that move did not stop there. That strength continued through much of August, and at the Jackson Hole Economic Symposium later in the month, another drive availed itself.

EUR/USD Daily: July ECB Brings Far Different Result as Bulls Directly Fade Draghi’s Dovishness