The ECB is digging the trenches and bolstering its defenses in preparation for a long siege by a growing number of consumers, producers and market participants clamoring for lower rates. With the Eurozone flirting with technical recession and headline inflation already edging down thanks the oil price correction, the ECB today focused its efforts on taking the wind out of the sails of those asking for monetary easing. Trichet prepared the ground for arguing that a sustained reduction in oil prices will help growth and therefore reduce the need for monetary easing; he also elegantly conveyed the idea that the ECB is already perhaps too tolerant and sensitive to the growth risks, given the inflation outlook. The ECB’s goal over the coming months will be to prevent the market from pricing in rate cuts for as long as possible. This defensive stance, however, will not be enough to offer the EUR any substantial support, especially as Trichet today gave his blessing to the recent correction in EUR/USD; with some help from the ISM, EUR/USD has now broken through 1.44 and might fall significantly further if tomorrow’s NFP surprises to the upside. The ECB also announced a tightening of its collateral policy, which should make “originate to repo” harder at the margin. The ECB has been a key provider of liquidity for the banking system since the inception of the crisis; I trust that the changes have been calibrated with extreme care, but their impact will need to be closely monitored, given the already stressed conditions of financial systems.