EURO FALLS SHARPLY DESPITE THE HAWKISH ECB DECISION

The euro declined sharply after the statement by Christine Lagarde, the President of the ECB. The bank decided to leave interest rates unchanged and said that they will stop quantitative easing on July 1. In a press conference, Lagarde said that the bank will raise its key rate by 0.25% to minus 0.25%. It will then increase it in September and exit negative rates. Most importantly, the ECB said that a larger increment will be appropriate in September if inflation continues rising. The decision comes a year after the bloc’s key inflation rose above the 2% target. Eurozone government bond yields rose after the decision, with Italy’s 10-year rising to 3.62%. Rising peripheral euro zone bond yields and spreads increase the risk of potential fragmentation, which puts a downward pressure on EURUSD. 

The US dollar rose after a surprise increase in initial jobless claims in the United States. According to the Bureau of Labor Statistics, initial jobless claims rose to a five-week high of 229k from the previous week’s 202k. The next key catalyst for the currency will be the latest US consumer inflation data. Analysts expect the data to show that the headline CPI rose from 0.3% in April to 0.7% in May. They see the typical shopping basket’s price rising from $289.11 to $291.66. They also expect that the core CPI declined from 6.2% to 5.9%. These numbers will come a day that the average gasoline price in the US rose to $5.

The economic calendar will have some important events today. The Russian central bank will likely slash interest rate by 40 basis points to 10%. The bank has been cutting rates since the strength of the Russian ruble has pushed inflation lower. In Europe, Norway and Spain will publish the latest consumer inflation data while Christine Lagarde will deliver another speech. Meanwhile, in Canada, the statistics agency will publish the latest jobs numbers. Analysts believe that the country’s unemployment rate declined to 5.2% as the economy added 30k jobs.

EURUSD

The EURUSD pair declined sharply after the ECB interest rate decision. The pair fell to a low of 1.0640, which is lower than the ascending trendline shown in red. It also moved to the 50% Fibonacci retracement level and the 25-day moving average. The pair also moved below the 25-day moving average while the Relative Strength Index is pointing downwards. The pair will likely continue the bearish trend ahead of the upcoming US inflation data.

XBRUSD

The XBRUSD pair rose to a high of 122, which was the highest point since February. The pair managed to move above the important level at 120.33, which was the highest level early this month. It also remains above the 25-day and 50-day moving averages. The MACD also moved above the neutral point while the Relative Strength Index has tilted lower. Therefore, the pair will likely keep rising as bulls target the key resistance at 123.

USDJPY

The USDJPY pair continued its bullish trend due to the divergence between the Federal Reserve and the Bank of Japan. The pair rose to a high of 134.17, which was the highest point in over 24 years. It moved above the 25-day and 50-day moving averages while the Relative Strength Index and the momentum oscillator have kept rising. The pair will likely keep rising since the BOJ has not expressed any signs of intervening.