The US Dollar caught a bid ahead of today´s US inflation report. The latest figures are likely to show the biggest year-on-year increase in US consumer prices in almost three decades, and the odds of the headline CPI figure beating expectations is fairly high. This would add to fears that the US economy could be overheating soon, forcing the Federal Reserve to act.
EUR/USD has been consolidating in a relatively tight range in the past few weeks. Tomorrow, the currency pair might finally see a breakout as the US inflation numbers and the ECB meeting spark volatility. To the topside, traders will be keeping a close eye on the upper channel line, followed by the 1.2265 level. A clear breakout would pave the way for an extension of the rally towards at least 1.2350. To the downside, support is seen at 1.2104, followed by the key support zone between 1.1985 and 1.20.
The British Pound has come under slight pressure. UK Prime Minister Boris Johnson warned the nation about rising COVID-19 cases; the increase was driven by the delta virus variant and could threaten a further easing of restrictions on June 21. This could potentially slow the economic recovery down, and hurt business and consumer confidence.
The key levels to watch are 1.4080 and 1.4250. A breakout to the downside appears more likely as the Greenback could get a boost from higher than expected inflation data, while the threat of an extension of COVID-19 restrictions in the UK may additionally weigh on the British Pound. A breakout below 1.4080 could pave the way for a correction towards the 38.2% Fibonacci of the 2021 rally, which lies at 1.3945.
Inflations concerns are unlikely to disappear any time soon, which will keep Gold in demand. The precious metal recently extended gains, but is facing some headwinds now due to a stronger US Dollar.
It might be worth looking at the cross pairs instead, such as XAU/AUD which has been in a steady uptrend since late March. Should fears about an early rate hike by the Federal Reserve intensify, risk appetite in global markets will suffer. This would weigh on the Australian Dollar, which is generally seen as "risk-on" currency. At the same time, safe havens like Gold will remain attractive. The main obstacle for XAU/USD is currently the 200 DMA which lies at A$2472. A daily close above this level could signal an extension of the rally towards at least A$2538.
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Investors are still digesting the latest statements from the US central bank, which surprised markets with a far more hawkish stance than expected