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Why are US CPI, ECB minutes so important?

Summary:

  • US inflation is expected to have accelerated in June
  • ECB minutes could signal some disputes within the Governing Council regarding a rate increase next year
  • US500 approaches pivotal resistance, EURUSD goes back to trading within a consolidation

The US dollar has commenced this week on a wrong foot, but since then it has been able to trim its losses to some extent while US stocks are continuing to push higher. Nevertheless, this week abounds in two crucial releases which could substantially affect both the EURUSD as well as the SP500 (US500).

What to expect from the ECB minutes?

The European Central Bank decided to lower its asset purchases to 15 billion EUR per month between October and December, and then to halt purchases altogether except for reinvestments. However, major attention was paid to a hint delivered by Mario Draghi during his press conference suggesting that any interest rate increases might be unlikely until at least summer 2019. This remark saw the euro falling quite notably, but then some hope for bulls occurred. Namely, at the beginning of July we were offered revelations that some European Central Bank policy makers are uneasy that investors are not pricing in an interest rate rise until December. Indeed, based on the money market pricing one may notice that traders assign merely 33% to a 10 basis point increase by June. Taking these remarks into account one may expect that there were some disputes among policy makers with respect to a date when the ECB should pull the trigger. This topic could be critical for the euro. The minutes will be published at 12:30 am BST on Thursday.

US wage growth not enough to see quicker rate hikes

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US wage growth has stalled over the recent months suggesting the Federal Reserve could be unlikely to deliver more hikes than it’s signalled recently. Source: Bloomberg, XTB Research

The second crucial release for this week is US inflation for June where expectations point to a 2.9% yoy rise in terms of headline. In turn, core CPI is estimated to have sped up to 2.3% yoy from 2.2% seen in May. Nevertheless, one needs to spot that June will be the last month with so supportive base effects (there was a trough in CPI in June last year). Therefore, since July onwards one needs to be aware that a statistical effect will be acting weaker and weaker. Either way, given that wage growth remains well below 3% yoy it could be hard to see CPI running above 2.5% for longer. Finally, let’s notice that rate hikes in the US have been already priced in limiting scope for upside surprises unlike the ECB. The report will be released at 1:30 am BST this Thursday.

EURUSD

Thursday could bring increased volatility on the EURUSD. Paradoxically, the ECB minutes could turn out more important for currency traders compared to the US inflation data barring a major surprise in the latter. After drawing a bearish candlestick on a daily time frame the pair has begun giving back its previous gains. Therefore, it looks that a consolidation could be retained with a key support localized between 1.1450 and 1.1520, and a resistance at 1.1850.

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The EURUSD reverses its recent increase after drawing a shooting star in the vicinity of a 23.6% retracement. Source: xStation5

US500

The latest rally seen across US equities may be really impressive as the US500 is trading higher for a sixth consecutive session in a row. However, bulls could run into a crucial obstacle placed nearby 2800 points. Looking at a daily interval one may determine that a pivotal support is placed at 2680 points (a support at 2740 points could matter as well).

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The US500 is gaining ground another session in a row approaching its crucial resistance. Source: xStation5

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