EUR/USD perks up ahead of ECB, UK CPI beats

Asian Indices:

• Australia's ASX 200 index rose by 107.7 points (1.62%) and currently trades at 6,757.30
• Japan's Nikkei 225 index has risen by 684.91 points (2.54%) and currently trades at 27,647.92
• Hong Kong's Hang Seng index has risen by 296.47 points (1.43%) and currently trades at 20,957.53
• China's A50 Index has risen by 7.65 points (0.05%) and currently trades at 14,151.22

UK and Europe:

• UK's FTSE 100 futures are currently up 32 points (0.44%), the cash market is currently estimated to open at 7,328.28
• Euro STOXX 50 futures are currently up 5 points (0.14%), the cash market is currently estimated to open at 3,592.44
• Germany's DAX futures are currently up 67 points (0.5%), the cash market is currently estimated to open at 13,375.41

US Futures:

• DJI futures are currently up 115 points (0.36%)
• S&P 500 futures are currently up 45.25 points (0.37%)
• Nasdaq 100 futures are currently up 15.75 points (0.4%)

The weaker US dollar and expected reopening of Nord Stream 1’s pipeline allowed appetite for risk to extend its rebound for a second day. Indices across Asia, Europe and US were broadly higher by yesterday’s close, and key metals such as palladium and copper were also higher. Commodity currencies NZD and AUD were the strongest majors of the session, with the latter given a boost from hawkish RBA (Reserve Bank of Australia) minutes.

UK inflation continues to rise

• Consumer prices rose to 9.4 y/y (9.1% previous, 9.3% forecast)
• However, CPI rose 0.8% m/m (above 0.7% forecast and expected)
• Core CPI fell to 5.8% y/y as expected, down from 5.9% previously

Consumer prices continued to rise overall in June, and that only adds further pressure for the BOE to hike rates for a sixth time this cycle. We know that BOE are likely to hike in a couple of weeks, yet the amount remains in question.

BOE Governor Andrew Bailey this week had said whilst a 50-bp hike will be considered at their next meeting, it is down to an individual’s assessment as to whether they think they will pull that trigger. In all likelihood I suspect they will now go down that path, as 50 (and even 75-bp) hike are the new norm, and it is difficult to argue that you’re taking inflation seriously whilst also gradually rising rates. The BOE hold their next monetary policy decision on August the 4^th.

EUR/USD 4-hour chart:

With the US dollar pulling back, it could allow the euro to strengthen into tomorrow’s ECB meeting on the anticipation of a 50-bp hike. However, this runs the risk in a “buy the rumour, sell the fact” which could then see the euro top. Especially if it is not a hawkish hike – or they now ‘surprise’ with the original 35-bp hike. Therefore, I’m inclined to have a bullish bias leading into the meeting and a bearish bias following it. The 1.0300 – 1.0350 is the next target for bulls, a break above which invalidates the thesis for a pending top.

Economic events up next (Times in BST)