With the euro zone starring down the barrel of negative growth and weak demand, several market-watchers have placed their bets on whether Mario Draghi, president of the European Central bank (ECB), will announce more stimulus next week and push stocks another leg higher in the process.
Credit Suisse analysts were the first to throw their hat in the ring. They predicted in a research note Monday that Draghi will make an "explicit announcement" on a large-scale bond-buying program, commonly called quantitative easing or "QE". This would include the buying of sovereign debt, they added, and boost market confidence into year-end. Peter Oppenheimer, the chief global equities strategist at Goldman Sachs, has a base case scenario for a QE announcement early next year, but is expecting a 365 point rise for the Euro Stoxx 600 Index in 2015 with returns of 25 percent.
This extra liquidity has the potential to spring new life into European bourses which have seen an indifferent year. The German DAX has clocked gains of 3.9 percent so far, the French CAC is up 2.1 percent and the pan-European Euro Stoxx 50 is higher by 7.6 percent.
Meanwhile, the euro has weakened in light of the predictions of these large-scale asset purchases. The ECB constantly iterates that the exchange rate is not a primary goal but its strength against the dollar has been crumbling with investors predicting a flood of extra cash in the euro zone economy. It has depreciated 10 percent against the greenback since its 2014 peak of 1.3933 in March. On Wednesday morning it was trading at 1.2460, easing lower after comments from the ECB's Vice-President, Vitor Constancio.
Constancio helped to soften lofty expectations of QE next week, saying that the bank would have a clearer picture on whether it should buy these sovereign bonds in the first quarter of next year, according to Reuters.
Kit Juckes, the global head of foreign exchange strategy at Societe Generale, believes that the general trend for the euro is still to the downside, estimating a move towards 1.20 against the U.S. dollar in the near term, But Juckes also urged investors to keep "pretty tight stops" on their short positions with its fall having the likelihood of some volatility.
Adam Myers, the European head of FX strategy at Crédit Agricole CIB, believes that "extreme" short positions in the single currency will unwind on some ECB disappointment next week, telling CNBC Wednesday that it could even rally against the dollar towards the end of the year.