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Low Volatility

Happy Pentecost everyone!

In terms of a U.S. debt deal, traders will focus on how talks progress as the June 5 deadline approaches. Meanwhile, stronger than-expected U.S. inflation led to a repricing in rate hike expectations, bringing back the possibility of a Federal Reserve rate hike in June. An anticipated pause in the Fed’s rate hike cycle could thus be a close call.

On Friday we will have the U.S. NFP jobs report scheduled for release. Further signs that the job market is robust will cool rate-cut bets and thus, support the greenback.

DAX: The index holds above its crucial support zone between 15650 and 15700. As long as that zone remains intact, we could imagine another bullish run for 16300.

EUR/USD: We expect the pair to trade between 1.08 and 1.06 for the time being.

Markets are shut today for the Pentecost or Memorial Day holiday (U.S.). Volatility could thus be at muted levels.

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U.S. Dollar Resumes Rally After Highest Inflation Print in 20 Years

The U.S. dollar rose to fresh highs against the euro and British pound after the U.S. inflation print showed the highest annual rate of inflation in over 20 years at 6.2 percent. Rate hike bets surged as investors began to price in tighter monetary policy from the Federal Reserve in order to curb inflation. The market is now pricing in a full 25bp rate hike by July 2022.

Both EUR/USD and GBP/USD slipped below crucial support zones and bears are eyeing next lower targets.

GBP/USD: If 1.3390 breaks, we see a next important target at 1.33 from where bulls could try to start a countermove. A current resistance is seen at 1.3520.

EUR/USD: Remaining below 1.15, next lower targets are seen at 1.1450 and 1.14 but traders should be careful. The pair is oversold in short-term time frames which is making corrective moves more likely. Short-term resistances are seen at 1.1540 and 1.1580.

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ETH/USD

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Fed Taper is Priced-in, U.S. Dollar Pulls Back

Speaking of inflation, the headline U.S. CPI number came in marginally higher than expectations while the core CPI print was in line at 0.2 percent (MoM). Most FOMC participants saw inflation risks as weighed to the upside and price pressures could sustain for longer than policy makers expected, yesterday’s FOMC minutes showed. A taper will be almost certainly announced at the Fed’s November meeting. The U.S. dollar weakened in the aftermath of yesterday’s reports since much of that expectation has been already priced in.

DAX

The best performer was the DAX that provided buyers a good gain (in our case a 100-points-profit). As long as the index holds above 15000, we will focus on a potential test of the 15500-area.

EUR/USD: We expect the pair to trade between 1.1750 and 1.15 in the near-term. Chances are slightly in favor of the bulls right now.

GBP/USD: A sustained break above 1.37 could drive the pair towards 1.3850 but sterling bulls should be cautious since sterling’s outlook clouded over somewhat. Falling back below 1.3540, a next lower target is seen at around 1.3370.

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Weird U.S. Labor Market Still Favors Fed Tapering

The U.S. dollar weakened in an initial response to the non-farm payrolls miss last Friday. While a strong U.S. job report was previously expected, the job growth in September turned out to be the slowest this year. With only 194,000 jobs added last month, it was the unemployment rate that fell to 4.8 percent and rising wage growth that prevented the greenback from a steeper decline. The lower unemployment rate, however, can be attributed to the decline in the size of the overall labor force. Average hourly earnings showed the strongest advance since April, highlighting companies’ attempt to attract workers be offering higher wages.

Despite the weird labor market picture that simultaneously shows signs of weakness and overheating, the Federal Reserve is expected to proceed with a tapering of bond purchases.

The British pound stabilized above 1.36 as the likelihood of a December rate hike by the Bank of England increases. Latest remarks from BoE officials suggest that the market should brace for a “significantly earlier” rate increase than previously thought to curb inflation.

GBP/USD: If the cable climbs above 1.3660 we pencil in higher price targets at 1.3750 and 1.38. On the downside, we would wait for a renewed fall below 1.3540 in order to expect a test of 1.34.

EUR/USD: Chances could shift in favor of the bulls, provided that the 1.16-hurdle can be taken out. A sustained break above 1.16 would shift our focus to a higher target at 1.1670, followed by 1.1750. However, if 1.16 remains a resistance, we see a lower support zone between 1.1430-1.14.

This week, most attention will be paid to the September U.S. CPI print on Wednesday. Elevated price pressures may underline that Fed tapering is just around the corner.

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U.S. Dollar Extends Decline On Powell Remarks

The U.S. dollar extended its recent decline after Federal Reserve Chair Jerome Powell acknowledged uncertainty around increasing inflation risks at yesterday’s hearing. While Fed policy makers believe that price increases will likely wane, Powell said that inflation overshoots “have been larger than we expected and they may turn out to be more persistent than we expected.” He said the Fed will not raise interest rates preemptively while policy makers “will wait for actual evidence of actual inflation or other imbalances.”

The EUR/USD extended its rebound until 1.1950. Above 1.1960 we expect the pair to head for a test of 1.20. A current support is seen at 1.1850.

The GBP/USD refrained from breaking above 1.3965 – at least until this morning. Above 1.3965 we will pay attention to a potential test of 1.40 and maybe even a run for 1.4080. A current support is seen at 1.38.


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Pound Consolidates – Focus Now On CPI Data

Dear Traders,

Those who had been looking for sustained breakouts or extended gains on Monday had been disappointed by the market’s consolidation phase. The pound sterling traded sideways within a 100-pip trading range between 1.2435 and 1.2335. Given the fact that the pound was unable to hold above the 1.24-level, we expect upcoming bearish momentum in the GBP/USD. As long as sterling remains below 1.2430 we see a higher likelihood of a downside break below 1.23 which could accelerate bearish momentum towards 1.22 and possibly even 1.2050.

How the cable will trade within the next days will mainly hinge on the Brexit trigger, which will happen on March 29. Prime Minister Theresa May plans to invoke Article 50 of the Lisbon Treaty next Wednesday, starting two years of exit talks. A hard Brexit will be negative for the currency, so traders should prepare for downward movements. However, before Article 50 is triggered, the pound could retest the 1.24-mark and possibly even the 1.2470-level on stronger inflation figures. U.K. Consumer Prices are scheduled for release at 9:30 UTC and a rise in inflation could help pushing the pound higher in the short term.

The euro traded consolidated between 1.0775 and 1.0720. A renewed break above 1.0770 may prompt euro bulls to buy the single currency toward 1.0815. A break below 1.0720 however, could lead to further losses towards 1.0680. With no market-moving economic reports from the Eurozone, we expect the price action to be limited to a range of 1.0820 – 1.0680.

Towards the end of the North American trading session some Fed officials are scheduled to speak. Any hawkish comments could have a positive impact on the U.S. dollar.

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