FOREX
Following this morning's release of UK inflation numbers, the pound lost ground to both the euro and the dollar. The CPI reading for June came up below expectations, with both the headline and core numbers showing a slowdown that will be welcomed by the underlying economy but will weaken the pound. With UK inflation finally slowing down, the markets are now expecting greater restraint from the Bank of England. The BoE still has some way to go in the current hiking cycle but will probably be less aggressive than some had predicted before today's release. Inflation is still well above the BoE's 2% target, so further rate hikes are still on the cards, with the next one expected in August. However, this hike is now more likely to be 25 basis points than the 50 bp many had been expecting. Against this background, there is scope for lower gilt yields and further pound weakness.
Ricardo Evangelista – Senior Analyst, ActivTrades
Source: ActivTrader
EUROPEAN SHARES
European shares rose on Tuesday as positive earnings boosted sentiment ahead of the EU’s crucial CPI report.
Risk appetite increased after investors welcomed a batch of positive earning reports from the US (BofA, Morgan Stanley) and the EU (ASML Holding NV), while the latest reassuring CPI print from the UK also contributed to market sentiment in the region.
Traders are now bracing for the next EU CPI report due later this morning, expected to show a significant decrease compared to last month to 5.5% from 6.1%.
Of course, easing inflation should naturally support the case of a less hawkish stance from the ECB, which would positively affect price action towards equity markets. On the other hand, a disappointing CPI report could increase pressure towards riskier assets and lead stock benchmarks to a pull-back.
That said, even if monetary policies are still among the biggest market drivers for traders, all eyes will likely remain on the corporate front, with results from Goldman Sachs, Netflix and Tesla awaited by many.
Technically speaking, the DAX-40 index is challenging a resistance zone between 16,200.0pts and 16,220.0pts while the market still trades above a bullish trendline.
Pierre Veyret– Technical analyst, ActivTrades
Source: ActivTrader
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