Tuuli Koivu, an analyst at Nordea Markets, thinks that given the weak economic outlook, low core inflation and inflation expectations for Euro area, more stimulus is in the pipeline from the ECB.

• “Long rates set to fall ahead of QE. Lower for longer weighs on 5y rates. Despite TLTRO&QE, relative liquidity points to higher EURUSD.
• The ECB has been carefully preparing the ground for a new stimulus package in recent weeks. The speeches, especially by President Draghi and Chief Economist Lane, have been interpreted as support for further easing. The main motivation for a new round of easing is that the macroeconomic outlook has remained highly uncertain and core inflation, in particular, has not shown robust signs of acceleration closer to the ECB target. In addition, market-based inflation expectations are at very low levels raising concerns of the ECB’s credibility.
• We think that recent economic data have been positive enough to delay the decision until September when the new ECB staff macroeconomic projections will be published. Much may depend on the PMIs published only a day prior to the meeting. Weak prospects among companies could be a sufficient trigger to get the attention of the governors who have not so far seen further stimulus as necessary to support a new easing package.
• The main things to watch at the ECB meeting on 25 July are:

1. Is the ECB Governing Council ready to decide about further easing already now?
2. If yes, the size of the stimulus could be rather small because it might be difficult to achieve a consensus on e.g. a new round of net asset purchases, yet. The possibility of “lower levels” could be included again to the forward guidance.
3. We expect to see more stimulus only in September, but will Draghi give any hints about the format and size of the stimulus?
4. Are there any signs of how unified the Governing Council is in their view on the economic outlook and risks around it?”