Markets Are Waiting for the U.S. Inflation

This trading week begun in a prudent way while investors are waiting for ECB meeting and inflation data from the United States.

The most intriguing question is inflation as this Thursday fresh May estimate on the inflation in the United States would be released. Forecasts suggest annual inflation up to 4.7% vs 4.2% previously, more than twice as much as the Federal Reserve target at 2.0%.

However, the Fed is still successfully maneuvering to avoid any tightening of monetary policy, claiming such inflation spikes are of temporary nature. Investors are more or less convinced by Fed’s rhetoric. However, the last Non-Farm Payrolls report may prove the Federal Reserve might be wrong. Hourly earnings at 0.5% instead of forecasted 0.2% point to this possibility.

The second major event is the European Central bank meeting on interest rates. ECB may change nothing waiting for the Fed to take a first move on its next meeting on June 15-16. But ECB has the same inflation problem as prices are up by 2.0%, a target ECB waited for years to be hit. So, European monetary policymakers may hint on a possible “technical” tapering of its anti-pandemic PEPP bond purchase program.

Technical picture confirms insecure condition of the stock market in the U.S. where S&P 500 broad market index is above its maximum technical level of 4160 points. The index is likely to aim to this level this week, and to even slip below it. If it succeed the next target would be at 4060 points.

Crude prices are close to their maximum levels of the week. Brent crude would be interesting to sell at $72.80 per barrel with a target at $68.70 per barrel.

Gold prices are below $1900 per troy ounce, but holding firmly. However, it the inflation data in the U.S. would be higher than expected interest rates may push gold prices back to $1850 per ounce. In the other case gold prices would likely to remain close to the current level.

The Greenback has no steam to continue its counterattack launched last week before the Non-Farm Payrolls data were released. However, inflation data may trigger U.S. Dollar to a sharp rise in case of higher than expected figures, or we should be waiting for the Fed meeting next week. The EURUSD is trading near 1.21850 level saving its potential to decline to 1.20500. However, the best level to open sell positions is located at 1.23000. GBPUSD is holding above 1.41200 with a potential to jump to 1.42500, where optimal point for sell positions is located.

The USDJPY fell almost to the lowest support level at 109.00. Here we may expect the pair to reverse to 109.80. But this possibility should better not be used as strong possibility of the U.S. stock market decline may pressure the pair even below current support level.