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Vols Suggest Market Anticipates More Muted ECB React Relative to September

EUR
  • EUR/USD trading close to the day's lows with just under an hour out to the ECB decision. While no change in rates is expected, markets will be carefully watching for any tweaks to the balance sheet approach or PEPP holdings, while the currency could be particularly sensitive to any clues on the timing of the first rate cut of the cycle, currently close to fully priced for the Jun'24 meeting.
  • EUR/USD has extended the pullback from Tuesday's 1.0694, suggesting the October corrective rally could have concluded. Tuesday's candle could confirm this, having formed a bearish engulfing candle.
  • Sizeable strikes for the Thursday NY cut (post ECB presser) lie at $1.05 (E678mln) and layered between $1.0540-50(E1.8bln). Overnight implied vols have seen some support headed into the decision, however the two-day premium added this month (4 points) is smaller than for the Sept decision (9 points), suggesting markets anticipate a more muted reaction today relative to September's 25bps hike.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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