[ForexNews]

Yesterday's "ECB sources" report at the margin confirms economists' view that the ECB might surprise by saying relatively little on Thursday other than the Dec 12m LTRO being the last one of its kind. The path of least resistance would be for the ECB to keep other operations unchanged for now (and decide later on them), just drop the 12m ones and do the last one at a fixed rate of 1%. The report tends on balance to suggest that there will be no indexation of the 12m LTRO to the main policy rate.

The report also discussed FX policy, with one source commenting, "If the ECB moves before the Fed, you would have a negative exchange rate issue to contend with". However, another source reckoned, "the level of $1.50 is not a disaster for the eurozone given the current circumstances, but there is definitely a feeling again that China needs to do more". A third source observed that all the rhetoric over exchange rates was "understandable, if only in terms of getting prepared"..."but we would have to see $1.60 before this issue becomes really serious". Altogether, the comments were EUR-positive: it seemed the euro is not at the forefront of the ECB's policy deliberations yet - partly because the current level is not seen as "too strong" but also because the feeling is little can be done on the ECB's part to deal with this.