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9
Jun

ECB Monetary Policy Statement and Press Conference, US Unemployment Claims

calendar 09/06/2022 - 08:12 UTC

The dollar index (USDX) that measures the performance of the US dollar against a basket of major currencies is seen trading in a tight range between 101.88 and 102.87 since Monday less than 3% below the multi-year high of 105.09 reached early in May.

The greenback has seen some support lately, due to its safe haven appeal, reaching a fresh two-decade high against the yen hitting 134.54 on Wednesday, its highest since Feb. 27, 2002. At the same time, the euro also reached its highest level against the yen since Jan. 5, 2015, as the Bank of Japan insists on following a separate path of ultra-loose monetary policy as opposed to the Fed and the ECB.

In other news, Asian share markets seem to have recovered from two-year lows touched last month and moved moderately higher on Wednesday, with the Japan 225 and the China A50 gaining by a mere 0.3% and 0.4% respectively while the Hong Kong 50 ended the day 1.4% higher. Nonetheless, investors remain worried that central bank policy tightening to control inflation could spark an economic slowdown.

The focus for Thursday is shifted towards the European Central Bank (ECB) monetary policy statement where it is expected to be quite aggressive, with interest rate hikes possibly beginning in July. Markets appear to be pricing in a 75 basis points hike by September.

On another note, markets are also anticipating the U.S. consumer price data on Friday that the White House has said it expects to be "elevated". Economists expect annual inflation to be 8.3%, according to a Reuters poll.

Another important fundamental release scheduled for Thursday is the weekly US unemployment claims report where an increase to 205K is expected from 200K reported last week.

EUR/USD

The euro is trading in a tight range against the dollar since the beginning of the week, fluctuating between levels 1.06531 and 1.0749 as recent US dollar strength is now tested by rising demand in the euro ahead of the ECB monetary policy statement later in the day.

The central bank has made it very clear that it plans to raise interest rates in July, so it could possibly lay the groundwork and make a case for tightening at its meeting on Thursday.

In the week ahead, US unemployment claims and Friday’s CPI report could be the main drivers for price action and for the Fed to consider its next steps.

EUR/USD

Gold

Gold prices fluctuated between gains and losses on Wednesday, only to end the day almost unchanged, trading close to the 1850 per ounce mark as investors anticipate the ECB monetary statement later in the day and more importantly, Friday’s inflation data from the US that could be a main driver for gold as the precious metal is considered a hedge against rising inflation.

ECB president Christine Lagarde revealed plans to end the central bank’s monetary easing policy, saying that negative deposit rates should start rising in July and could be at zero or "slightly above" by the end of September.

Gold

WTI Oil

The price of WTI gained by more than 2% on Wednesday, reaching three-month highs on the back of strong signs for an increase in demand with China coming back from strict lockdowns and stronger-than-expected trade data, suggesting a rebound in the world’s second largest economy and one of the biggest consumers of Oil in the world.

China’s May exports grew 16.9 on an annual basis, far exceeding April’s growth of 3.9%, while imports in May increased by 4.1%, posting the first rise in three months.

Inventory data from the EIA released on Wednesday, showed an increase by more than 2 million barrels for last week, but U.S. gasoline stockpiles dropped by 812,000 barrels, indicating fuel demand resilience during peak summer despite high costs.

WTI Oil

Germany 40

The main European stock market indices posted a sharp drop on Wednesday as investors attention is now turned towards the ECB’s policy-setting meeting later in the session. Both the Germany 40 and the France 40 lost 1.6% and 1.7% of their value respectively on Wednesday and are still seen moving deeper into negative territory early on Thursday.

The central bank is widely expected to announce an end to large-scale asset purchases, paving the way for a first increase in interest rates in more than a decade next month to combat record levels of inflation.

President Christine Lagarde expressly mentioned that the ECB's minus 0.5% deposit rate should start rising in July and could be at zero or "slightly above" by the end of September.

According to analysts from ING, market expectations for a rate hike this week are close to zero, while 25bp increases in July and September are fully in the price, in line with recent ECB communication.

Germany 40

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