October's eagerly awaited announcement from the ECB may turn out to be a damp squib for the common currency, as policy expectations have been well priced, but a surprise from Draghi & Co could induce substantial volatility into the single-currency.

The unenthusiastic view around potential Euro price action is based on the premise that the ECB has been leaking details of its decision to the European press ahead of Thursday’s decision, due at 12:45pm London time, in order to ensure a muted reaction from both bond and currency markets.

“We struggle to get excited with the ECB governing council meeting today,” says George Saravelos, an FX strategist at Deutsche Bank. “There has been unusually consistent press reporting on what the ECB is likely to do: extend QE for another nine months but at a lower monthly rate of 30bn.”

Expectations of a reduction in quantitative easing Thursday and a consequent uplift in market interest rates are well priced into foreign exchange rates and have been the primary forces keeping Euro-to-Dollar supported in recent weeks according to one strategist.

The Euro-to-Dollar rate was quoted 0.03% lower at 1.1814 during early trading Thursday but it is up 12.4% for the 2017 year to date.

“The Euro has already traded higher ahead of the ECB meeting and since speculative positioning points to an excessively positive view, any more upside potential appears limited today,” says David Kohl, chief currency strategist at Swiss wealth manager, Julius Baer.

But with markets betting so heavily on a single outcome from the day’s policy announcement, there is of course scope for substantial volatility should the ECB decision deviate from that expected by the market.

“Given the current relative lack of yield support for the EUR this suggests significant space for currency volatility should the ECB surprise the market today,” says Simon Derrick, chief currency strategist at BNY Mellon.

Since the beginning of October there has been a sharp decline in the correlation between German and US government bond yields over a two, five and ten year horizon, with a the Euro unhindered by a widening gulf between market interest rates on either side of the Atlantic.

“A key market event that could prove important in shaping FX direction for the remainder of the year is upon us today,” says Derek Halpenny, European head of global markets research at Japan’s MUFG. “But the appetite for EUR at levels below 1.1800 yesterday on a day when US yields increased relative to core EZ yields suggests market participants see limited downside for the euro based on the current market consensus.”

Economists and strategists are unanimous in their expectation that the ECB will curtail its €60bn per month bond buying program and emphasise that interest rates will remain at or below current levels for an extended period of time.

The only place where there is divergence is in forecasts of how steeply Mario Draghi and his colleagues on the governing council cut the ECB’s QE purchases and over what length of time they are phased down to zero.

“Cutting from EUR 60bn to EUR 30bn in one go in January is aggressive and sends the message that the ECB is not willing to alter its own self-imposed rules on purchases and possibly that the anti-QE element of the Governing Council is winning the internal debate,” says MUFG’s Halpenny.

With consensus set firmly on a reduction of bond purchases to €30bn per month, it will be an actual result that deviates from this level that has the most scope to influence future interest rate expectations and to induce volatility into markets.

“The only big surprise we see from today’s ECB meeting is an abrupt change in messaging around the timing of interest rate hikes. The EUR is likely to be highly responsive to a signal that a shift away from negative rates is approaching,” says Deutsche Bank’s Saravelos. “Our baseline is that it is too early for this debate to happen now and that conditions are likely to favour subdued EUR/USD volatility into year end.”

Deutsche Bank's Saravelos sees the European Central Bank as a fading influence on the EUR/USD rate as other factors are now exerting ever more sway over price action.

“The ECB has been losing its influence on the euro because underlying flow dynamics are becoming more important. The market’s structural euro underweight has been one driver behind EUR/USD outperformance this year. It is worth noting that unhedged equity inflows have continued to rise in recent weeks,” Saravelos says.

Questions over who will head up the Federal Reserve from February 2018 and whether or not President Donald Trump will be successful in driving tax cuts and reforms through the Washington law making machine are also critical factors when it comes to the future direction of EUR/USD.

“Bringing it all together we see EUR/USD “trapped” between a consistently positive underlying flow story and a repricing of US tax policy that favours the dollar,” Saravelos concludes.

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