Monday kicked off on a mixed note as investors braced for a week filled with key economic releases, the European Central Bank meeting and highly anticipated US inflation report.

The dollar found itself under renewed pressure on Monday afternoon as investors mulled over last Friday’s payroll report. Although the headline employment numbers disappointed, other figures from the monthly release illustrated a more complicated picture of labour market tightness.

On Tuesday, it became increasingly clear that markets were awaiting the next catalyst. The dollar experienced a minor rebound from the 90.00 support level while gold flirted around the $1900 psychological level.

In the United Kingdom, rising Covid-19 cases raised doubts over the planned easing of restrictions on June 21. Speculation started to grow over the date being pushed back by two weeks.

The GBPUSD was stuck within a 100-pip range with support at 1.42 and resistance at 1.41. We will keep a close eye on this pair next week as a breakout could be on the horizon.

Our trade of the week was the EURUSD which remained rangebound as markets awaited the ECB meeting and US inflation report. Given how the ECB was widely expected to leave interest rates and stimulus unchanged, we highlighted how the Euro was more likely to be influenced by the US CPI report. Looking at the technical picture, the EURUSD is under pressure with prices trading around the 1.2100 support level as of writing.

Mid-week, stock markets remained near record highs as the Fed’s patient message soothed fears over the proverbial stimulus punch bowl being taken away sooner than expected. In another reminder of rising price pressures, China’s producer prices increased at their fastest pace in 13 years.

It was all about the ECB meeting and US inflation numbers on Thursday.

As widely expected, the ECB kept its interest rates and stimulus program unchanged despite rising inflation across the bloc. All in all, the central bank expressed optimism over the Eurozone economy and saw broadly balanced risk and stable financial conditions. Despite the optimism expressed, the ECB maintained a safe distance from the ‘T’ word.

The major highlight this week was the red hot US inflation report.

In May, the annual inflation rate for the United States rose at its fastest rate since 2008. Consumer prices jumped 5% year-on-year, up from 4.2% while core inflation rose 3.8% annually. Despite this super-hot release, Treasury yields tumbled, dragging the Dollar lower while US stocks rallied to fresh record highs.

Digging deeper into the report, CPI was boosted by hefty contributions in used car prices and airline ticket prices which analysts are seeing as short-term in nature. In other words, the spike in inflation was fuelled by “transitory” factors – something the Fed has repeatedly highlighted.

On Friday, Dollar bulls made a return thanks to upbeat consumer sentiment figures from the United States. The University of Michigan’s preliminary read for June improved more than expected, rising to 86.4 from 82.9 in May and higher than the 83.0 forecast. The Dollar Index is trading above 90.45 as of writing and could target 91.00 this month if a weekly close above this level is achieved.

In the commodities arena, gold failed to conquer the psychological level $1900 level this week while oil prices edged up to their highest in over two years.

Focusing on the technical picture, gold bulls have the potential to strike back if $1855 proves to be reliable support. However, a breakdown below this point could encourage a decline towards $1842 and possibly lower this month.

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