(26 OCTOBER 2018)DAILY MARKET BRIEF 1:ECB easing optimism amid Italy budget risk

At yesterday’s MPC, ECB President Mario Draghi maintained the policy unchanged and the end of the QE program by year-end, as expected. A rise in the key rate is not expected before next autumn.

Mario Draghi managed to cool down optimism, downplaying the Eurozone growth and inflation outlook, which ultimately helped the single currency to gain ground against the greenback, which managed to trade above 1.14. However the trend was short-lived, as the question relating to the Italian budget situation and its impact on the ECB normalization path came out. By the end of the day, the EUR lost its gain, trading at -0.15% against the buck.

Accordingly, we expect the Italian budget issue to remain limited. For now, the ECB is not expected to implement a more restrictive monetary policy. The only driver of this decision would be a rise in inflation, which will surely happen in spite of increasing wage growth.

EUR/USD is expected to weaken ahead of US 3Q GDP and economic sentiment data. Approaching the 1.1355 range.