ING’s Francesco Pesole expects the European Central Bank to keep rates unchanged and does not see French bond market stress as sufficient to trigger a dovish pivot, given high Oil and gas prices. Markets price some chance of a December hike, but ING anticipates a cautious communication. The bank sees EUR/USD holding above 1.110, with US data potentially exerting modest downside pressure.

Euro seen holding above key support

“The European Central Bank is likely to keep rates on hold today. We’ve outlined four scenarios in our ECB cheat sheet: three involve a hold, while one very hawkish scenario sees a hike. Our baseline view is neutral.”

“We don’t think we are at the stage where French bond market turmoil can trigger a significant dovish turn by the ECB, especially with such elevated oil and gas prices (TTF hit €100/MWh in Europe yesterday).”

“We expect much of the market reaction to be driven by the ECB’s tone on France and the prospect of another hike this year. Markets are pricing in 21bp for December, and in September officials signalled that a rate hike by year-end was in play in their customary tip to the media a few hours after the rate announcement.”

“Either way, we don’t expect this meeting to be a turning point for the euro. EUR/USD has shown it’s not yet ready to break below 1.110, and we don’t expect today’s ECB risk event to trigger a major leg lower. A slightly stronger USD on US data may, however, keep modest pressure on the pair.”

“Signalling that rates are “likely” to be raised in December would constitute a modest hawkish surprise in our view. However, we see a slightly less committal message as more likely, perhaps that a December hike is “possible” or “in play”.”