EUR: It's All About Politics And ECB; Further Recovery Into Year-End

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Both the Italian Constitutional Referendum as well as the ECB monetary policy announcement will attract attention.

When it comes to Italy, exit polls may be released from 11pm CET on Sunday while the official result is expected on Monday morning. With increased expectations as when it comes to Renzi losing the referendum, such an outcome is already partly priced in. Considering that it is not clear how things will proceed in the case of a ‘no’ vote, we believe market impact will prove limited. This is especially true should Renzi refrain from resigning. Presidential reelections in Austria are unlikely to prove a major market driver, especially as the President acts merely as a ceremonial figurehead.

When it comes to the ECB all eyes will be on any decision, when it comes to extending QE. Our economists do expect an extension and as such an outcome is already widely expected, we expect only limited currency impact. We also note that an extension of QE is the ECB simply maintaining its current policy stance, not loosening it. As such Draghi is likely to reiterate that the Eurozone economy is on track. Just recently he stressed that he expects inflation to move back close to target between 2018- 2019.

As a result of the above outlined conditions we stay of the view that EUR/USD is bottoming out and that higher levels may be reached towards the end of the year.


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