Main Events of the Week!

Transitory versus sustained?

Headline and core prices are expected to jump to 4.7% and 3.5% respectively in the US CPI numbers with base effects being the primary reason for the surge higher. This should be the peak for US prices with the trend starting to come down in June, although some economists still believe they will remain elevated and above target through the rest of the year. But the Fed is in no rush to respond as it is happy to look through the spike in rising prices, especially as the latest US job figures provide a further excuse for its patient stance.

We’ve seen bond markets move already with yields falling steadily all week with the widely-watched US 10-year Treasury now trading below 1.5%, the first time since March. A bumper headline number to the topside of estimates is surely needed to arrest this fall, but bond markets are known to generally lead markets so it will be fascinating to see who is right later today.

USD/JPY has been tracking sideways this week in a narrow range around 109.50. A bumper CPI print would push the pair higher and challenge last week’s highs at 110.32/33 while support rests at the 50-day SMA at 109.10 near this week’s lows.

ECB meeting and taper talk

ECB officials have recently been talking down any mention of tapering bond buys in the emergency ECB programme but there are some expectations that there may be a small change in guidance. This would come in the statement with a shift from “significantly” to “moderately” higher than at the start of the year and see buying cut to €70bn/month versus the current rate of €80bn/month. If President Lagarde does not repeat this “taper on hold” message or there is a communication error, then the risks are skewed to a higher euro as market expectations are generally currently cautious.

EUR/USD has been treading water this week either side of 1.22. Any bullish talk from Lagarde will see the pair push higher towards end of May highs at 1.2266 with the January peak at 1.2349. Last Friday’s low at 1.2103 is support if the ECB gets out its very patient and vigilant card.

By Lukman Otunuga Research Analyst

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Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions