ECB will be treading a fine line on Thursday
The architects of the Euro wanted a currency to rival the hegemony of the US dollar. Part of their wish has certainly been granted, though not in the way they would have liked. The European Central Bank is arguably the most important central bank in the world at the moment as it grapples with the Eurozone crisis and all eyes will be on its President Mario Draghi at Thursday September 6's press conference.
In particular clues will be sought on that plan for buying Spanish and Italian government bonds the ECB has hinted at to bring their yields down to levels so those two countries can finance themselves. But there is still so much up in the air. The Germans and some ECB members are unhappy about this plan, then there's the European Stability Mechanism needing approval from the German courts on Wednesday Sept 12 and then Spain needs to request help from the ESM as a precursor to ECB intervention. This all takes time. Therefore Draghi is likely to be fairly vague on Thursday other than to confirm that progress is being made.
The markets will probably buy that and therefore the Euro should at least remain steady. The ECB may even announce a rate cut due to deteriorating economic conditions and falling inflation expectations in the Eurozone, which would raise the spirits of Euro bulls.
When the plan does emerge it may involve targeting bonds with maturities of three years and less in deference to German concerns over moral hazard implied in buying longer-term debt. There's also no guarantee that the ECB will announce a yield target and may opt to simply lower yields by an unspecified amount or subject to a formula based on spreads above some other instrument such as base rates. It may even look to sterilise its purchases by selling other bonds as an offset – in other words it wouldn't be doing quantitative easing. But whatever the ECB does it will have to be big and bold to convince markets that it really is pulling out all the stops to save the Euro.