The ECB set a 2% medium-term inflation target, abandoning the previous wording “below but close to 2%”, which conveyed the impression that the regulator was more concerned about overshooting its target. The ECB will adopt the new strategy at its July 22 meeting.
Today’s macro agenda (GMT 3)
- 15:30 Canada: employment change and unemployment rate (June)
- 17:00 US: wholesale inventories (May)
- 20:00 US: Baker Hughes O&G rig count
In APAC trading, major currencies got stuck in the red, with the yen and franc seeing the steepest losses. This is predictable, since these currencies strengthened sharply against the dollar yesterday, whereas today they reverted to a correction. Firming of the Australian and New Zealand dollars is tepid amid a surge in coronavirus infections across the Asian region. Japan has declared a state of emergency until August 22. An outbreak of the more transmissible Delta variant is being observed in the US, Israel, Germany and the UK, heightening fears that the existing vaccines will show low efficacy against the new Covid-19 mutations.
Since case numbers are on the rise in countries where over 50% of the population has been vaccinated, this raises serious worldwide concerns. The Organisation for Economic Co-operation and Development (OECD) yesterday warned that new outbreaks of Covid-19 remain one of the top risks to the global economic recovery.
The price action has corrected to 1.1825 from 1.1868 and is hovering above the balance line (55-day SMA). Now take a look at the price dynamics from June 30 to July 2. During that period, the price also rose sharply and then wiped out gains after retracing to lows. Now we can see a similar picture shaping up, although it will run its course only if the pandemic narrative is toned down. Therefore, FX players are advised to keep a close eye on the AUDUSD and NZDUSD pairs, as well as gold and stock indices.
If risk appetite increases and the dollar index decreases, we expect to see the price action retrace to the trendline. The sooner the price returns to 1.1855, the higher the odds will be of the trendline breakout followed by a move up to 1.1890.