Market Update as Investors' focus shifts to US CPI and ECB

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Market Update as Investors’ focus shifts to US CPI and ECB

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The dollar reacted with a shocking rally on Wednesday despite the continued pressure on the treasury yield. Market mood mid-week thus supported risk-off assets as investors and traders look forward to the ECB monetary minutes and the US CPI data later in the day.

The dollar index surged to 90.15 on Wednesday and continued the move up to 90.25 prior to the opening of the London market on Thursday. This was despite the bond yield falling below 1.48% for the first time in nearly three months. Investors are still wary of early tapering despite the Fed’s easing comments. Last Friday’s NFP missed and later today, US CPI data will be announced. S&P 500 dived in the opposite direction as it faltered to 4212 before the current push to 4220 as the London market started on a risk mood.

In the currency market, while the dollar recovered across the board, the Euro stumbled very close to the 1.215 psychological level before a minor push above 1.216 ahead of the important ECB monetary policy statements. Sterling has started to feel the Brexit pressure again as the post-Brexit Northern Ireland protocol together with a resurgent dollar forced GBPUSD below 1.41 psychological level. Meanwhile, high-beta Aussie and Kiwi have stayed quiet for much of the week, unable to keep up last week’s bullish momentum. The Canadian dollar fell on Wednesday after a dovish BoC thus lifting USDCAD above the 1.21 key psychological area.

In the commodities market, Gold continues to struggle with the corrective decline despite a falling yield. A drive to 1880 has been followed by a minor rebound to 1882 in the early hours of the London session as the dollar retreats. Meanwhile, WTI has returned upside but is still below $70 after Wednesday’s fall.

Today’s Key Events

The week started quietly. However, momentum returned on Wednesday and should continue today as investors and traders look forward to high-impact events including the ECB policy meeting and US CPI figures.

ECB Minute

The European Central Bank is expected to leave its current record-low interest rates unchanged. Also, the bank will most likely maintain the current pace of its quantitative easing programs. Although there have been some improvements in the bloc’s economy as a result of the ongoing re-opening efforts aided by rapid vaccination exercises, the bank is expected to play the waiting game. Earlier this year, the bank added to its bond and asset purchases. In May, ECB President Lagarde argued that tapering will be far too early thus the bank is expected to keep up with its current €1.8 trillion pandemic emergency purchase program (PEPP).

US CPI

The US inflation data is very important to many investors as most commodities and currencies are denominated in the dollar. Last Friday’s NFP miss saw the dollar index down to 90 before a further decline to 89.83. However, Wednesday’s shocking surge has continued and thus forced a retest of the 90.25-90.3 key intraday resistance zone.

Market consensus expects the May CPI and Core CPI at 0.4% and 0.5% respectively which are both around 50% reduction of April’s figures. With the economy reopening and business activities returning to full scale in the US, the inflation rate is expected to slow down and thus help the Fed to maintain its current easing policies which might discourage early tapering. The result should be downbeat for the dollar if we go with the current market sentiment. In fact, lower-than-expected CPI figures will most likely drag the dollar index back to 90 and below and then lift the US equities market. On the other hand, a higher than expected CPI would raise concern again as investors play safe against early tapering. This should lift the safe-haven dollar further and pressurize equities.

Disclaimer: This communication is for informational purposes only and should not be viewed as any form of recommendation as to a particular course of action or as investment advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This communication has been prepared based upon information, including market prices, data, and other information, believed to be reliable; however, TigerWit does not warrant its completeness or accuracy. Trading CFDs involve risk and can result in loss of capital.

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