It’s a quiet trading day but we’re carrying over the themes from last week, with the USD keeping lower for the most part while equities are looking to extend the bounce from last week. I categorised last week’s move as that of markets looking for some breathing room after the moves from April to early May. That largely applies to major currencies and stocks. But it is the bond market that holds the key.

As things stand, we’ve gotten to the point where the bond market is looking past Fed rate hikes and that was evident as pointed out last week. In a sense, we have priced in ‘peak hawkishness’ by the Fed – at least per the current communique. But as recession risks start to creep into the picture, that’s perhaps a cause for repricing or at least a reason to reassess most currencies.

For now at least, we’re arguably just settling into a bit of a breather after the surging moves since the start of April. The dollar is weaker again today as we continue last week’s form (it is a US holiday today, so there might be little conviction to switch things around).

EUR/USD remains on course to hit 1.0800, which may offer a bit more resistance considering it has been a previous contested level. Although moving averages are doing a good job in providing support during pullbacks on the H1 chart, which indicates decent buying pressure.

EUR/USD Daily Chart – MAs Keeping the Price Supported

Buyers remain in control as the USD keeps retreating

German May CPI Inflation Figures

• Saxony May CPI YoY +8.0% vs +7.2% prior
• Bavaria May CPI +8.1% vs +7.5% prior
• Hesse CPI +8.4% vs +7.9% prior
• Baden-Wuerttemberg CPI +7.4% vs +7.0% prior

Based on the state readings so far, it points to an upside beat in German inflation figures this month. The national reading is estimated at +7.6% y/y but I would say we should see something around +7.8% y/y.

EUR/USD Live Chart