ObservingMarkets During the trading week, EURUSD fell slightly, breaching the 50-EMA. On the other hand, the market has turned around and is now putting pressure on the 1.08 level above. The breach of the 1.08 level opens the door to a move toward the 1.10 level, possibly as high as the 200-Week EMA, which is currently hovering around the 1.1075 region. This would obviously be very bullish for risk appetite because it would send the US dollar lower, which would be a good sign for risk appetite’s overall health.
Keep in mind that the Federal Reserve and the European Central Bank both have meetings next week, so we’re likely to see more rowdy behavior. Because the central bank meetings are within 24 hours, it stands to reason that the market will react violently.
The US will release May inflation figures next Tuesday, ahead of the Fed’s monetary policy decision. The Consumer Price Index (CPI) is expected to rise by 4.2% year on year, while the core annual CPI is expected to rise by 5.6%, up from 5.5% previously. The figure is likely to boost bets on a rate hike ahead of the Fed’s announcement on Wednesday, and it could cause some wild volatility in the currency markets, particularly if the outcome exceeds expectations.
When the Federal Reserve announces its decision, it will also make noise. The most likely scenario appears to be a pause followed by a hawkish message that opens the door to another rate hike in the near future. If the Fed confirms that monetary tightening is still on the table, stock markets may crash, while the USD may rally as a result of the uncertainty.
Finally, the European Central Bank (ECB) will make monetary policy decisions on Thursday. The market’s perspective is less hazy, as speculative interest is betting that European policymakers will act. Markets anticipate a 25 basis point increase and a hawkish message of additional increases in the upcoming meetings.
The bottom line is that the US CPI and the Fed’s announcement have the greatest potential to set the market tone for the coming weeks. If the CPI falls short of expectations and the central bank shifts to the dovish side, risk appetite will likely take over and lead to significant USD losses, with the EUR/USD potentially breaking through the 1.1000 level.
