(24 OCTOBER 2018)DAILY MARKET BRIEF 1:Range trading dominates ahead of ECB

Most currency pairs continued to consolidate on Wednesday as investors already started to shift attention towards the upcoming ECB meeting. Concerns over Italy’s fiscal situation will not vanish overnight; however, market participants will happily put this subject on the backburner for a day or two. EUR/USD has been sideways for the past 24 hours as it moved back and forth around the 1.1450 level.

It is going to be tough press conference for Mario Draghi as he’ll have to present a credible approach against the backdrop of rising uncertainty surrounding the fiscal clash between the EU and Italy as well as the approaching end of fresh asset purchases.

Investors also hope to receive further information regarding the reinvestment of proceeds from maturing debt: the pace of disinvestment, allocation per maturity and country, etc. Finally, investors will search for clues about the timing of the first rate hike. For now, expectations are for a late 2019 move and it appears unlikely that Draghi would try to change those.

We remain bullish on EUR/USD as we believe that the market has finished pricing the Fed rate cycle, which should end in 2020; therefore, there is not much room left for further USD appreciation. However, we may have to be patient to see an euro rally as Draghi will do everything to avoid such an event.

By Arnaud Masset