EURUSD steadies ahead of ECB hike
The euro steadies as the market awaits another rate hike from the ECB. Given the persistent nature of inflation, policymakers have reiterated that the hike campaign needs to be forceful to achieve a lasting result. Christine Lagarde has stressed that inflationary pressures are yet to peak while other officials echoed that it may take longer than expected to see the impact of normalisation filter through. The ECB is to deliver a hike this week with another move in July likely to be up its sleeve. The outlook beyond the summer is a market driver as that is where uncertainty lies. 1.0540 is a key support and 1.0900 the first hurdle ahead.
USDJPY advances as BoJ to stay put
The Japanese yen weakens as its central bank is unlikely to ditch its ultra-accommodative policy. Despite better-than-expected GDP and price growth lately, policymakers might continue to sit on their hands at the next few meetings. The BoJ may content itself with a tweak of the yield curve control at most but leave interest rates in negative territory. Caution and patience will be Governor Ueda’s motto, as a premature exit from the current loose policy could undermine the recovery. Stark contrast between US and Japanese bond yields is likely to favour the greenback. 142.20 is the next hurdle and 137.50 a fresh support.
XAUUSD slips as dollar recoups losses
Gold softens as US Treasuries hold on to gains as the Fed pivot remains uncertain. In the wake of surprise rate hikes from the Reserve Bank of Australia and the Bank of Canada, traders have to reconsider their bets of a pause by the Federal Reserve. A resilient US labour market combined with hawkish comments from some officials argues for at least one more hike, either next week or in July. After Fed Chair Jerome Powell signalled last month a potential pause, a June hike would be an upside risk for the US dollar at the expense of the precious metal. A deeper correction in the bullion price would send it to 1850 with 2000 as a hurdle.
NAS 100 rallies in hope of inflation slowdown
The Nasdaq 100 advances as investors hope for the near end of the policy tightening. The problem the Fed is facing is that consumer spending is still robust and the unemployment rate is well below 4%, making wage inflation a sticky issue. Markets are still pricing a rate cut this year but the likelihood is receding. As the central bank has made its next moves data-dependent more than ever to see how the medicine is working, the upcoming CPI will be a major market mover right ahead of the rate decision the day after. Volatility is expected to soar with April 2022’s high of 15280 as the next stop and 13600 as the closest support.
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