Week Ahead: Euro rallies into ECB Rate Decision

Weekly Recap

It was a choppy week for the US Dollar. A string of better data and hawkish Fed comments into the middle of the week helped lift the greenback. Consumer confidence and ISM manufacturing both beat estimates, while Fed’s Williams and Bullard urged the Fed to press ahead with planned rate hikes over the rest of the year. However, DXY sipped back on Thursday as the ADP employment figure came in well below estimates

In FX, the Swiss Franc was the big winner this week. Recent hawkish comments from SNB members have created a seismic shift in SNB policy expectations. With the SNB now looking likely to hike in the near-term, CHF reversed sharply higher. JPY, meanwhile, was the main loser. The BOJ’s latest reaffirmed commitment to easing, along with broadly stronger risk appetite, saw JPY well sold across the week. 

On the data front, record eurozone inflation over May has put even greater pressure on the ECB heading into the upcoming June meeting this week. While the ECB is not forecast to hike rates, there are upside risks and the market will at least be looking for a definite signal that a July hike is coming. 

The BOC was seen hiking rates by 50bps midweek along with signalling further action to come. The bank cited surging inflation in its warning that it will likely need to act more forcefully in the near future to bring price pressures under control. 

Shanghai coming out of lockdown helped lift risk sentiment this week though gains were limited amidst the growing wave of central bank tightening. ECB is nearly ready to join its peers in lifting rates and with further tightening expected in the US and UK, volatility in equities markets remains ongoing. 

Oil prices saw plenty of volatility themselves this week. Initially crude was seen spiking higher early in the week in response to news that the EU has agreed a ban on Russian oil before reversing these gains. On Thursday, however, crude prices shot higher in response to the EIA reporting a massive 5 million barrel drawdown in crude stores. This news seemed to overtake OPEC’s announcement that it will step up production output at a faster pace than expected this month. 

Coming Up This Week

  • RBA June Rate Decision

The RBA rate decision this week will take on extra focus in the wake of the bank’s rate hike last time around. The RBA caught the market off-guard with the hike and, given the hawkish forward guidance issued at that last meeting, traders are now bracing for further tightening this time around also. The Australian economy is still benefiting from its post-lockdown pickup in activity, which is stoking the flames of inflation further. With this in mind, look for the RBA to hike again, along with signalling further action in the near future. Any deviation from this will likely see the Aussie under pressure. 

  • ECB June Rate Decision 

It’s been a rollercoaster year for ECB watchers. However, the central bank has now finally stated its intentions to hike. While the ECB is currently pegged to hike rates in July, following the ending of its PEPP this month, there are upside risks on the back of that record eurozone inflation print we saw last week. With this in mind, traders should be weary of the chances of a small hike at this juncture, setting up a further hike in July. 

  • US CPI 

US Inflation data will be closely watched as we round out the week. Market players are currently tussling over the possibility that the Fed will look to pause on rates after the July hike. With some arguing that this perspective is entirely premature and others arguing that inflation (as evidenced at the last reading) is already moderating nicely, this week’s data might see fireworks. If inflation was seen picking up again last month, this will put hawks back in control, sending USD higher. A further softer reading, however, will give more weight to the idea of a post-July pause, leaning on USD near-term. 

Forex Heat Map 

Source: MyFXBook

Technical Analysis

Our favourite chart this week is USTEC (H4)

The US tech index has broken a 2-month old down-sloping trendline to the upside and made a higher high above 13,000. The price is consolidating against old resistance turned support at 12,600, which should it give way could see price test prior resistance at 12,000 as support. 

Source: OneRoyal MT4 platform

For more technical analysis, make sure to join our weekly market analysis webinar also available on Youtube.

Economic Calendar

Highlights include service sector PMIs, the US balance of trade, Eurozone GDP, Eurozone unemployment, China inflation and Canada unemployment.

Source: https://oneroyal.com/eu/tools/economic-calendar/

Thank you very much for reading – and have a great week trading!

Best Regards 

— One Royal Research team —Register with One Royal today or Login to your account

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