ECB decision today
US equities declined sharply yesterday, with each index losing around 1% following the higher-than-expected inflation report. This eased the chances of a 25-bp rate cut by the Federal Reserve in June.
However, most of the core’s strength is explained by firmer motor vehicle insurance costs and medical care – both do not feed into the core PCE deflator in the same way.
Looking ahead, it’s important to note that these outcomes are likely to be revised lower in the following inflation report, a trend that has been consistent throughout the year. The Core PCE, which remains the key, will continue to shape the market’s trajectory.
The Fed Fund Futures are now pricing in less than a 20% chance of a 25-bp rate cut in June and less than a 50% chance in July.
Eyes on the ECB decision today
Before today’s US session, eyes will be on the ECB decision. The ECB will likely keep the current policy unchanged while traders pare ECB cut bets after US CPI data. ECB Chair Christine Lagarde will give investors more clues regarding the date of the first rate cut.
According to Bloomberg, traders are pricing in an 80% chance of a 25-bp rate cut in June.
DXY outlook change around the corner
Following yesterday’s CPI outcomes, the US Dollar spiked across the board due to fears of higher inflation, lowering the possibility of an early easing by the Federal Reserve.
The US Dollar Index closed yesterday above 105.0, dramatically easing the bearish outlook. However, the weekly close remains the key for now.
A weekly close above 105.50 would confirm a change in the bearish trend to strongly bullish. This would be the index’s last chance to resume its downtrend. Otherwise, a new bullish trend would follow.
EURUSD near 1.07 solid support
EURUSD declined following the US data, breaking multiple support levels, including 1.08 and 1.0760. It reached as low as 1.0730 earlier this morning and is nearing solid 1.07 support.
1.07 remained solid since December of last year, and today’s ECB decision is likely to give more clues on whether the ECB is locked in for a rate cut in June. It would also confirm whether the Euro can hold that 1.07.
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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