The European Central Bank is expected to keep policy unchanged today. Nevertheless, in light of yesterday disappointing PMIs figure from the euro-area, one cannot exclude that Mario Draghi would shift to a more cautious tone regarding the growth outlook.
The euro-area composite PMI contracted to 52.7 in October from 53.9 in the previous month and missed median forecast of 53.9. In addition, growth estimates have also been downwardly revised as economic growth is expected to have eased to 1.8%y/y in the third quarter, down from 2.1% in the June quarter.
Market participants are also expecting Mario Draghi to make some remarks about the ongoing situation in Italy. However, the ECB President always took great care to avoid commenting such subjects. Nevertheless, he would certainly recognise that it is creating short-term uncertainties, just as the ongoing trade war between the US and its main trading partners.
EUR/USD
Overall, we believe that the risk is mostly skewed to the upside for the single currency. The euro already went through a substantial sell-off over the last few weeks. Just yesterday, the euro fell 0.65% against the greenback and fell to its lowest level since mid-August. We remain confident the Italian situation would be resolved shortly. After all, the Italian government made clear it was ready to discuss its budget with the EU commission.
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