Markets Report - 09 June 2022

A daily breakdown of the markets for the 9th June 2022, provided to you by Sterlex.

🇪🇺💶“President Lagarde is unlikely to explicitly indicate 50 bps is coming but will Lagarde be in a position to explicitly exclude it? We doubt it and if that is the case, the rates market may well move to fully price 50bps. Regarding the European Central Bank (ECB) meeting, the crucial aspect for the markets is how much guidance President Lagarde is willing to give in relation to the size of the rate hike in July. If a strong commitment is expressed on that, it would likely reinforce expectations of more aggressive rate hikes over the short-term.” “The outperformance of the euro yesterday may be an indication of direction today following the ECB meeting. The euro was the top performing G10 currency on Wednesday. Economists at MUFG expect the common currency to strengthen unless a 50 bps rate hike in July is completely discarded. That implies further upside scope for market rates and the euro.” “We expect Lagarde to emphasise the scope for reinvestments to be undertaken flexibly implying the willingness to shift reinvestments from say Germany to Italy.

🇬🇧💷Technically, EUR/GBP’s daily chart shows that the price is wavering within a month-long range, with bulls now eyeing a test of the resistance at 0.8583. Ahead of that, they need to find a strong foothold above 0.8565 recent range highs. On the GBP side of the story, cable remains offered amid the UK political and the renewed Brexit concerns. The GBP/USD pair is scaling lower after failing to sustain above 1.2540 in the Asian session. The greenback bulls are dragging the asset towards the psychological support of 1.2500 as negative market sentiment has trimmed the risk appetite of investors. the prior print of 6.2%. The extent of deviation in the US CPI will have a significant impact on the interest rate decision by the Federal Reserve (Fed) next week. Meanwhile, a classic caution trading ahead of the ECB event also keeps the higher-yielding pound on the back foot, in turn, supporting EUR/GBP. Uncertainty is advancing in the FX domain as investors’ focus has shifted to the US inflation, which is due on Friday. On a broader note, the cable is juggling in a range of 1.2430-1.2600 over the past two weeks. The annual Consumer Price Index (CPI) is expected to remain unchanged at 8.3% while the core CPI that excludes food and energy will slip to 5.9% vs.

🇺🇸 🏦The erratic performance in the dollar comes in line with the equally choppy mood in the US cash markets, where yields seem to be stuck in the upper end of the recent range and always looking at speculations regarding the Fed’s policy for direction. In the meantime, the Fed’s divergence vs. The index seems to be in a waiting-mode ahead of the imminent ECB event and the publication of May’s US inflation on Friday. The Dollar index keeps the choppy trade so far this week amidst the generalized cautious mood among investors ahead of the upcoming ECB interest rate decision and the release of US inflation figures tracked by the CPI on Friday. The dollar’s weakness seen in mid-May came in response to the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.