EURUSD rallies as more tightening ahead
The euro advances as stubborn CPI led traders to factor in the chance of a bigger rate increase by the ECB. Consumer inflation across the eurozone eased in March thanks to falling oil and gas prices but the core rate excluding volatile items such as energy and food has stayed persistently high. Services inflation is a thorny issue as a tight labour market exacerbates wage pressures. This would help policymakers justify the need to keep lifting interest rates on top of the 350 basis points since last summer. A decent GDP reading would cushion the impact from high borrowing costs and lift the single currency to 1.1250 with 1.0800 as support.
USDJPY recovers on dovish BoJ
The Japanese yen weakens as the Bank of Japan is expected to maintain a dovish stance. Governor Kazuo Ueda has been insisting on a continuity of policy since he took the reins in spite of the market pressure. The central bank is concerned that the CPI may fall below 2% around the middle of this year after a flare-up to a 41 year-high of 4.2% in January and then a cooldown to 3% last month. With a mission to keep the country out of its chronic deflationary problem, the BoJ will leave monetary easing untouched and the upcoming meeting should offer no surprises. The pair is heading back to 138.00 with 132.00 as a fresh support.
UKOIL retreats as demand uncertain
Brent crude slipped over a dim outlook amid high borrowing costs. Ongoing global interest rate hikes still weigh on sentiment. While the US is reaching the end of the road, more tightening pressures in the EU and the UK keep traders on their toes. The pullback has given up most of the gains from a surprise OPEC+ production cut announcement. Not even a better-than-expected Chinese GDP figure and a steep decline in US crude stockpiles managed to halt the price correction. This is fairly indicative of the overall wariness about demand growth for the rest of the year. 87.50 is a fresh resistance and 70.00 remains a critical floor.
NAS 100 steadies over mixed bag of earnings
The Nasdaq 100 tries to hold on to gains as first quarter earnings fail to impress. The Fed has signalled they are approaching the end of its aggressive policy tightening campaign, with probably one last hike of 25 basis points to go. However, mixed messages from officials sowed doubt that rate cuts would come soon this year as there are still hawks advocating a rise above 5%. Lacklustre Q1 earnings cast a shadow on the economic outlook. The market darling Tesla’s earnings miss amid a price war in the electric vehicle market suggests that the Fed-engineered ‘soft landing’ is under way. 13700 is the hurdle ahead and 12500 a close support.
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