Spreadex Market Update
Euro sinks after ECB, US CPI could bring Fireworks
Volatile week for the Dollar culminates with today’s US CPI release. EUR weakened yesterday despite hawkish ECB outcome as traders focus on growth concerns around July rate hike. Equities plunged on further central bank tightening signals amidst recessionary fears. Oil slips back from weekly highs as USD rally limits gains.
Key Factors for Today
- USD saw strong gains yesterday as EUR tanked
- Big focus on today’s US CPI reading
- Equities fell on fresh central bank tightening signals & recessionary fears
- EUR fell despite ECB July rate hike signal, JPY leads FX on safe-haven demand
- Oil prices down off weekly highs despite better China imports data
Coming Up
- CAD Canadian Employment data
- USD US CPI
- EUR ECB’s Lagarde speaks
US CPI In Focus Today
The US Dollar has kicked off the final European session of the week with a slightly softer tone on the back of yesterday’s gains. The DXY rallied more than 1% on tumbling risk appetite as traders reacted to the latest central bank tightening signal from the ECB. With financial conditions around the globe tightening, recessionary fears are back in focus. Today’s US CPI figure has the potential to create further volatility if we see a strong reading, reinforcing Fed hawkishness ahead of next week’s FOMC meeting. Similarly, a weak number will likely fuel a USD unwind, giving more weight to the prospect of a post-July rates pause from the Fed.
Risk Appetite on Growing Central Bank Tightening
Equities markets plunged lower yesterday in response to news of the ECB gearing up for its first rate hike in over a decade and ahead of US CPI today. The DAX is now sitting almost 4% off the weekly highs. Losses were not just limited to European asset markets either. The ASX200 has been the worst performer of the week, down over 4% following the RBA hike on Tuesday. Even the Nikkei, which started the week with strong gains, has reversed 2% amidst this latest wave of risk aversion.
EUR Sinks Despite Hawkish ECB Meeting
In FX, EURUSD was seen falling 1.5% yesterday despite the hawkish message from the ECB. The central bank announced an end to its asset purchase program and confirmed a 25bps hike due in July with the potential for a further, larger, 50bps hike in September. Given the reaction, it seems that traders are focusing on growth fears and the risk of recession. Given the fall back in risk appetite, JPY has been the strongest currency again over late Asian and early European trading on Friday, benefiting from increased safe-haven flows.
Metals Market Still Stuck in The Mud
It's been an uneventful week for metals traders. Both gold and silver continue to tread water within recent ranges. Today’s US CPI reading might prove the necessary catalyst for action should we see a decent surprise in either direction. Failing that, the focus will be on the June FOMC meeting next week.
Oil Prices Slip on USD Gains
Oil prices are sitting down off the week’s highs following the resurgence in USD over recent sessions. While the macro backdrop remains broadly supportive, the rally in USD into the end of the week has had a limiting factor on crude upside. With risk appetite deteriorating into the end of the week, oil prices are around 2% off highs. News that China’s oil imports in May increased is an encouraging sign that demand is starting to return there.
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