June 10, 2021 10:39:52
“Super Thursday” has finally arrived with the release of the latest US CPI data plus the ECB meeting, with the press conference slated to start at the same time as the release of the inflation figures. Hopes are high that we get a bout of volatility to spice markets up after the slow start to the week.
USD/JPY uptrend intact
The major most sensitive to the US inflation numbers should be USD/JPY with the yen side highly correlated to US rates and bond yields. The annual reading is expected to tick higher to 4.7% from 4.2% in April while the core is set to rise to 3.5% in May from 3% in the prior reading.
If we see a higher reading, then there should be a kneejerk reaction with the dollar and yields going higher, especially having fallen so far this week. USD/JPY needs to get above last week’s high at 110.33 if it is to get anywhere near the cycle highs at 110.96. But the market has now gotten used to the fact that the Fed is looking through these base effects and supply chain issues so the price move maybe short lived. A softer print will be seized upon and send the pair lower, with support at the 50-day SMA around 109 where the short-term bullish trendline resides. If this gives way, then late May support comes into play around 108.56.
EUR/USD waiting for taper talk
ECB officials have already stated there may not be any taper talk at today’s ECB meeting, even allowing for the expected upgrade in their growth forecasts. If this happens, then the press conference will be where President Lagarde earns her corn and doesn’t get tied in a taper talk tongue twister.
If she doesn’t repeat the on hold message of the last few weeks and bows to hawkish pressures to mention possible future reductions in bond buying, the euro will go bid. The risks are skewed this way as consensus is for a dovish message. EUR/USD needs to beat yesterday’s spike high at 1.2218 before it can head towards the May 25 peak at 1.2266. Strong near-term support lies at 1.21 if taper talk is shut down completely, though Lagarde will have to go some way to be overtly dovish at this point indicating major downside risks.