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ING has analysed different scenarios ahead of this week's European Central Bank (ECB) announcement, assessing potential implications for the Euro to Dollar exchange rate (EUR/USD).

The 'cheat sheet' gives a useful gauge as to the direction and scale of the moves that might result from any shifts in policy and guidance on Thursday.

To be sure, markets are expecting the ECB to try and avoid any market reaction by hammering home the message that interest rate cuts are unlikely before June, but given the divergent opinions on the matter in the Governing Council, the prospect of a surprise cannot be ignored.

The base-case expectation from ING is a "moderately dovish" outcome whereby the central bank says risks to the inflation outlook are balanced and the warning about upside risks to inflation - as per previous guidance - is dropped.

In this scenario, the central bank says risks to growth are titled to the downside while acknowledging that conditions for rate cuts have been discussed.

The base-case sees Euro-Dollar declining to the key 1.08 support level (currently at 1.0854).

"The governing council also seems to coalesce around June as the date for a first cut, and if the ECB does indeed start to prepare the ground for such an outcome, that could be seen as mildly dovish against the backdrop of more cautious market pricing," says Francesco Pesole, FX Strategist at ING Bank.

"The possibility that the ECB discusses the conditions for starting to ease policy implies that the balance of risks is slightly titled to the downside for the euro this week," he adds.

Above: "EUR/USD net positioning still positive despite recent decline." - ING.

A more "dovish" scenario would see the ECB says the 2.0% target will be hit by early-2025 (as opposed to not being met before H2 2025 under the base-case expectation).

In terms of the growth outlook, ING expects the dovish scenario to entail warnings that the ECB sees signs of a sustained slowdown in the economic outlook. In this scenario, the ECB is actively discussing the timing of the rate cuts.

The dovish scenario could see Euro-Dollar fall to 1.0750.

A "hawkish" scenario would involve the ECB warning that higher energy prices mean the 2.0% target won't be met until 2024, and the balance of risk for growth are moving to the upside.

Here, the ECB warns it remains data dependent, and President Lagarde pushes back firmly against rate cut bets.

Under such a scenario Euro-Dollar is seen rallying to 1.0950.