Despite the Asian shares slid, European stock markets opened mixed Wednesday and still lack direction, though edged into positive territory later in the day. Global investors braced for the upcoming central banks gatherings this week – the Fed, the ECB and the Bank of Japan. So, the monetary policy has overshadowed geopolitics this week after the historic US-North Korea summit. As such, Britain’s FTSE 100 adds 0.46 per cent to 7,739, France’s CAC 40 gains 0.27 per cent to 5,467, while German DAX 30 rises by 0.17 per cent to 12,863. US stock index futures climbed ahead of the open, waiting for the Fed decision.
EURUSD lacks directional impulse ahead of the key central banks’ meetings. The Fed may reflect a more aggressive outlook for rates in its dot plot, which will fuel dollar demand along with the expected rate hike. The euro still looks vulnerable, despite the recent support amid some talks of the ECB QE end. The pair is yet to keep above the 1.17 threshold to confirm further recovery. The immediate risk for the pair is obviously the FOMS verdict. But should the monetary authorities fail to meet the USD bulls’ expectations, the greenback will get under pressure across the board. In this case, the pair could easily jump above 1.18, though the key driver is going to be tomorrow’s ECB meeting.
GBPUSD keeps trading with a bearish bias, with the 1.33level is at risk once again. The pair has accelerated the descent after the dismal UK inflation numbers. CPI came out at 2.4% in May, below that the expected rise to 2.5%. The bears took the release as a sign that the BoE won’t hurry with hiking rates as consumer prices start to signal the abating upside pressure. And the upcoming Fed decision only adds to the bearish pressure on the pound as the US central bank is widely expected to hike today. The pair needs to get back above the 20-DMA at 1.3370 in order to trim this week’s losses and resume its recovery attempts with the initial goal at 1.34. On the downside, the 1.33 level remains the key short-term support.
USDJPY jumped to fresh three-week highs around 110.70, trending higher for a third day in a row. The greenback is mostly on the offensive ahead of the FOMC meeting results, while the neutral risk sentiment adds to the bearish pressure on the Japanese yen. By the way, the pair could continue to climb north in the coming days as the Fed is expected to give some hawkish signals to the market, while the Bank of Japan will stay on hold as the domestic inflation remains low. From the technical point of view, there is a risk of short-term correction lower as the greenback looks a bit overbought already at current levels. The 111.00 level may scare off the USD bulls as well.
Crude oil prices have resumed the ascent recently after a brief dip to one-week lows at $75.25. Brent regained positive momentum but the overall picture in the market remains inconsistent as there is still a lot of uncertainty ahead of the key OPEC summit. It is reported that Russia is to put forward a proposal to increase output in line with each country’s quotas, citing the risk of the market overheating. Traders didn’t like this initiative, as well as the fact that Russia has increased its production before the meeting and pumped 11.09 million barrels of oil daily in the first week of June. The current rebound in Brent looks unsustainable and could fade away soon as the signs of disagreement among OPEC+ members are rising, while the US shale output continues to increase. Therefore, the price will hardly be able to confirm a break above the $76 threshold.
The bearish pressure on gold prices has eased somehow during the European hours as the dollar pared gains ahead of the FOMC decision. Nevertheless, the overall sentiment around the yellow metal remains negative, and the potential recovery still looks elusive at this stage. The price has been trading below the key 200-DMA for a month already, and the downside risks persist as long as the metal remains under this region. The key upside target comes at $1,300. A break above may take place should the greenback turn sharply lower after the Fed meeting. The baseline scenario is further decline and a drop below the $1,290 mark.
Nathan Lambert, Head of Global FX Analytical Department