European Central Bank meeting preview, to bring on ‘undesirable’ EUR volatility’?

Via a Commerzbank note previewing the European Central Bank meeting decision due on Thursday.

Analysts at the bank say that following the the ECB signalling a continuation of rate hikes for today’s meeting at its previous meeting, “the ECB is likely to find it difficult to move to a less explicit forward guidance without the market initially seeing that as a dovish signal.“

But Commerzobank says since that meeting signs have accumulated that the ECB too is no longer able to hike on autopilot:

• analysts point to signs of tighter credit conditions in the ECB’s Bank Lending Survey published earlier this week
• and renewed signs of an economic slowdown in Germany

These, says Commerzbank, should soon dampen ECB interest rate optimism. Adds that the ECB is probably facing a bigger communication challenge than the Fed.

And concludes with this, which may (well, is) be good for FX traders:

• That also suggests a higher risk of it ‘going wrong’ – i.e. the increased likelihood of undesirable exchange rate volatility.