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Financial markets have been on a rollercoaster ride last week as investors wondered whether the equity and bond sell-off would come to an end. However, it seems that investors remained reluctant to reload on risk last week. The first half of the week started in the possible way as equites across the globe recovered slowly. In the bond market, US treasury yields have had a choppy end of the week as the Federal Reserves published the minutes of its September meeting. Unfortunately, the minutes were extremely boring and didn’t add much information. However, looking at the market reaction, it seems that market participants were expecting a dovish turn of events. The US central bank is still clearly aiming at four rate hikes this year and is giving no intention of backing down.
On Friday, the greenback was able to consolidate the week’s gains. EUR/ USD tested the 1.1433 key support level (low from October 9) and bounced back toward 1.15 amid renewed risk appetite. Nevertheless, lingering uncertainties from the Italian budget situation and Brexit negotiations may continue to limit the currency pair’s potential gains in the short-term.
Next week will be key for the single currency as the European Central Bank will take centre stage. Indeed, the attention will now start to shift towards the upcoming ECB meeting that will take place on October 25. The September ECB minutes showed that European policymakers were concern by a potential slow-down in growth, mostly due to rising trade tensions. Investors have high expectations for next week meeting. The ECB is expected to end its negative interest rate policy in early 2020, while the first increase should occur in September next year. However, the central bank has given very little forward guidance in order to keep maximum flexibility.
Given the uncertainty generated by the political situation in Italy, we believe that the ECB will adopt a careful approach and stay quite dovish, meaning that EUR bulls would be sidelined for a longer period of time.
On Friday, the greenback was able to consolidate the week’s gains. EUR/ USD tested the 1.1433 key support level (low from October 9) and bounced back toward 1.15 amid renewed risk appetite. Nevertheless, lingering uncertainties from the Italian budget situation and Brexit negotiations may continue to limit the currency pair’s potential gains in the short-term.
Next week will be key for the single currency as the European Central Bank will take centre stage. Indeed, the attention will now start to shift towards the upcoming ECB meeting that will take place on October 25. The September ECB minutes showed that European policymakers were concern by a potential slow-down in growth, mostly due to rising trade tensions. Investors have high expectations for next week meeting. The ECB is expected to end its negative interest rate policy in early 2020, while the first increase should occur in September next year. However, the central bank has given very little forward guidance in order to keep maximum flexibility.
Given the uncertainty generated by the political situation in Italy, we believe that the ECB will adopt a careful approach and stay quite dovish, meaning that EUR bulls would be sidelined for a longer period of time.