Bank of America Merrill Lynch FX Strategy Research expects the ECB to extend QE by EUR30bn per month for 9 months, offsetting less QE with stronger forward guidance on rates.
"Markets already expect a dovish ECB, but we see two potential surprises.
First, if Draghi clarifies that what happens to QE after this week's extension is not a given and that it will depend on the inflation outlook.
Second, more specific forward guidance, on both depo and policy rates, linking them to inflation....Any guidance linking depo rates to the inflation outlook could be seen as dovish by markets," BofAML argues.
On the EUR front, BofAML notes that the market is going into the meeting slightly long EUR, but this position is not stretched.
"Positioning is not a constraint for the EUR to move in either direction. It will all depend on Draghi's communication," BofAML adds.