US CPI Acceleration may be Transitory, ECB Stays Dovish

TRANSITORY FACTORS BEHIND SURGE IN US INFLATION

The US dollar traded lower against all of its major peers on Thursday and during the Asian session Friday. It lost the most ground versus GBP, AUD, CHF, and CAD in that order.

AUD/USD — TECHNICAL OUTLOOK

After a strong reversal to the upside on June 4th, AUD/USD is now seen trading above a short-term tentative upside support line taken from the low of June 3rd. At the same time, the pair is still sitting slightly below a short-term downside resistance line drawn from the high of May 18th. For now, we will take a neutral approach and wait for a violation of one of those lines, before examining the next short-term directional move.

ECB TO ACCELERATE ITS PANDEMIC-RELATED PURCHASES

Now, apart from the US CPIs, we also had an ECB monetary policy decision yesterday. The Bank decided to keep all its monetary policy settings unchanged, noting that its PEPP (Pandemic Emergency Purchase Programme) will continue to run at a “significant higher pace”. The Bank raised its 2021 and 2022 GDP and inflation forecasts, but at the press conference following the decision, ECB President Lagarde clarified that headline inflation will remain below target over the forecast horizon. She admitted that they were somewhat more optimistic about the economic outlook than three months ago, but highlighted that the decision statement was unanimously supported, suggesting that tapering is not on any official’s mind at the moment. Having said all that though, the euro did not fall on the ECB’s dovish stance, perhaps as this was the outcome the majority of market participants may have been expecting.

EUR/GBP — TECHNICAL OUTLOOK

From around mid-May, EUR/GBP has been moving sideways, but at the same time, the pair is trading below a short-term downside line taken from the high of April 30th. For now, it seems that there is a greater chance of seeing a move lower, as our oscillators are indicating negative price momentum. However, in order to get comfortable with lower areas, we would prefer to wait for a break below the support area between the 0.8560 and 0.8565 levels, marked by the lows of May 12th and June 4th respectively.

AS FOR TODAY’S EVENTS

During the early European morning, we already got the UK monthly GDP for April, as well as the industrial and manufacturing production rates for the month. GDP accelerated to +2.3% mom from +2.1%, but the IP and MP rates missed their forecasts. In any case, the pound barely reacted on the release.

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