TALKING POINTS – EURUSD FORECAST, MARIO DRAGHI, US CPI, FED MONETARY POLICY
- Euro braces for ECB President Mario Draghi’s speech in Frankfurt, Germany
- US Dollar braces for CPI data – a weak reading may boost Fed rate cut bets
- EURUSD continues to trade above descending resistance – But for how long?
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The Euro and US Dollar will be in for a tense 24 hours ahead as ECB President Mario Draghi prepares to speak in Frankfurt, Germany and global investors brace for the publication of US CPI data. The meeting in Europe will also include ECB Vice President Luis de Guindos and IMF Managing Director Christine Lagarde. US price growth data will be closely watched because of the impact it may have on Fed monetary policy.
At the last FOMC meeting, Chairman Jerome Powell said that the temporary lull in inflation was “transitory”. Meaning, if price growth data shows sufficient strength, it could further give impetus for the central bank to raise rates. However, in light of recent economic data, market participants are already betting that the Fed’s neutrality has been compromised, with expectations of a 78 percent probability of a cut by the July meeting.
Across the Atlantic, political risks in Europe continue to brew, namely Brexit and the ongoing budget dispute with Italy. The former continues to be a headline – and headache – risk that has the potential to disrupt regional and global financial markets. The latter situation continues to escalate, with Euro Area Finance Ministers meeting this week to discuss how to handle Rome’s budgetary ambitions and discussing the dreaded EDP.
Amid broader US Dollar weakness from increasing bets on a Fed rate cut, EURUSD has jumped and broken through an 18-month descending resistance channel. Since May 31, the pair has climbed almost two percent. However, as risks in Europe continue to mount against the backdrop of slowing economic growth, a premium may be put on liquidity, and capital flow into the US Dollar may push EURUSD below its previous ceiling.
CHART OF THE DAY: EURUSD BREAKS ABOVE DESCENDING RESISTANCE – HOW LONG WILL IT LAST?
In Asia trading hours, Chinese CPI failed to significantly move markets after data fell in-line with forecasts. However, after the benchmark CSI 300 Index opened, the New Zealand and Australian Dollars found themselves in a sea red. This was compounded by fears that US President Donald Trump’s unpredictability could jeopardize a trade deal with China against the backdrop of souring relations with Europe.
NORDICS: SWEDISH CPI, RIKSBANK
In Sweden, the publication of the Prospera inflation expectations survey and speech by Riksbank Deputy Governor Martin Floden will be key event risks Krona traders will be monitoring. Swedish policymakers are growing increasingly frustrated with fading inflationary pressure while systematic risks from rising household debt are continuing to grow.
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter