Talking Points:

- Rising Brexit tensions and another softer UK CPI print could leave the British Pound at a disadvantage this week.

- The Federal Reserve will hike rates this week, but the US Dollar will be more sensitive to changes in year-end pricing.

- The Euro has been buoyed by expectations of a change to the ECB's QE program, but the taper won't likely occur until September.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

06/12 Tuesday | 12:30 GMT | USD Consumer Price Index (MAY)

Incoming inflation data for May will show that both measures of the US Consumer Price Index are above the Federal Reserve’s medium-term target of +2%. Headline CPI is due in at +2.7% from +2.5%, and Core CPI is due in at +2.2% from +2.1% (y/y). On the doorstep of the June FOMC meeting, these readings may help underscore a hawkish tone at the forthcoming rate decision that leaves the door open for four cumulative hikes in 2018. However, given that a June hike is already 100% priced-in, it would seem that the May US CPI release will only have a limited impact on markets.

Pairs to Watch: EUR/USD, GBP/USD, DXY Index, Gold

06/13 Wednesday | 08:30 GMT | GBP Consumer Price Index (MAY)

According to Bloomberg News, consensus forecasts are calling to see inflation having increased by +0.4% unch (m/m) and at +2.4% unch (y/y). Likewise, Core CPI is expected to have increased by +2.1% unch (y/y). Rates of inflation have been tamed quicker than policymakers were expecting, and commensurate with a slowdown in growth in Q1’18, it appears that the Bank of England is now in wait-and-see mode regarding more information before signaling for its next rate move. Barring a surprise beat to the topside, the data is unlikely to be the catalyst needed for the British Pound to end its two-month slide.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

06/13 Wednesday | 18:00 GMT | USD Federal Reserve Rate Decision and Press Conference

The Federal Reserve’s June meeting is one of the four during the year that yields a new Summary of Economic Projections, and as such, is one of the meetings that is primed for a change in policy. Fed funds futures are pricing in a 100% chance of a 25-bps rate hike this week, and that much has been priced-in by markets already. Given the recent rise in inflation, the policy statement is expected to tilt to the hawkish side, helping keep intact the US Dollar’s recent rise. The extent to which the statement is hawkish, however – what are the odds for a four cumulative rate hikes in 2018 – will determine which way the US Dollar ends up on Wednesday.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

06/14 Thursday | 11:45 GMT | EUR European Central Bank Rate Decision and Press Conference

With the ECB’s June meeting scheduled for this coming Thursday, the Euro’s rumor-driven rebound faces a make-or-break moment. With the latest inflation readings having exhibited a surprising rebound in price pressures – the preliminary May Eurozone CPI reading came in at +1.9% y/y and is expected to remain there at the final release this Friday – signs are pointing to the ECB’s Governing Council making an announcement with respect to their QE program (as rumors would have it).

Ultimately, the ECB meeting this week simply serves as an appetizer to a forthcoming change. The forward guidance aspect of the ECB policy will prove to be the most important factor when all is said and done, as the majority of market participants at this point in time aren’t expecting the ECB to cull their QE program cold turkey in September when the current leg winds down. Along these lines, because a rate hike by the ECB is still at least a year away, traders may walk away from Thursday’s meeting disappointed, and the Euro rebound may soon fizzle.

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

06/15 Friday | --:-- GMT | JPY Bank of Japan Rate Decision

The Bank of Japan may walk more of the relatively hawkish commentary made since the end of March following the release of the April inflation report. The National Consumer Price Index came in at +0.6% from +1.1% in April, down from +1.5% in March, highlighting the extent to which the BOJ needs to continue to keep its foot on the pedal for its easing program. Any such discussion by BOJ Governor Kuroda that remains centered on pulling back the central bank’s extraordinary easing efforts around the start of fiscal year 2019 (next April) would be seen as hawkish in light of recent data.

Pairs to Watch: AUD/JPY, EUR/JPY, GBP/JPY, USD/JPY

Read more: Euro Forecast: Euro Rebound Faces Test with ECB Meeting on Thursday

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com.

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