Dollar trading flat, remains close to 20-year maximum
The US dollar index is trading flat at the beginning of the European session, remaining close to the 20-year maximum reached on Monday. Investors are taking a pause for breath ahead of the release later today of US inflation figures for June, which are expected to be the highest in four decades. If these expectations materialize, confirming that consumer prices are still rising in the United States, the Fed will in all likelihood continue – and perhaps even intensify – its aggressive rate hiking program, in a scenario that entails further dollar gains. Meanwhile, on the other side of the Atlantic, the euro is under pressure as the prospect of a recession becomes increasingly realistic. Many observers now expect Russian gas to completely stop flowing; a development that will aggravate the continuing energy crisis, exacerbate inflation and, at the same time, reduce the ECB’s range of options to deal with escalating prices through tighter policies. The proposition facing the European Central Bank equates to an impossible balancing game, between curbing rising prices through tighter policies and maintaining sufficient stimulus to cushion the impact of the looming recession. Against such backdrop, the euro continues to hold parity with the dollar, but the question now is how low can the single currency drop in relation to the greenback.
Ricardo Evangelista – Senior Analyst, ActivTrades
European and US contracts slid lower on Wednesday, despite Asian shares closing in the green, as investors brace for a busy day on the macro front. Slight improvements regarding the virus situation in China lifted market sentiment overnight, especially towards tech stocks, while treasury markets remained stables. It’s inflation day in the US today, and most traders are bracing for the new US Consumer Price Index release, due at the beginning of the afternoon. This is seen as a crucial print as it will certainly shape market sentiment for the next couple of weeks at least. This report is widely expected to establish another four-decade high, at 8.8% vs 8.6% previously, but traders will be ready to adjust their trading strategies in the case of a surprise. Even if a number below the 8.8%-8.6% fork would not change the Fed’s current tightening policy significantly, evidence of a peaking or even receding inflation would be perceived as very good news by most investors, which could really improve market sentiment prior to the next rate hike at the end of the month.
London, Frankfurt, and Zurich are among the worst performers in Europe this morning, weighed down by health care and communication services shares.
The DAX-40 index is trading below the 12,800-pts level, close to its immediate very short-term support over 12,700 pts, the last one before the 12,430/12,555 pts zone.
Pierre Veyret– Technical analyst, ActivTrades
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