[MARKET ANALYSIS] USD diverges from softer energy benchmarks into PPI, EUR quiet ahead of ECB

G10s are mixed against the Buck in relatively thin trade into the ECB meeting and US PPI.
A busy morning in terms of newsflow, has not translated into price action/vol for G10s which are mixed against the flat Buck. Gradual weakness in Crude benchmarks seen among slew of optimistic US-Iran updates (see feed from 08:21-38 BST), did little to move DXY from its 100.00 handle despite Brent edging to session lows under USD 92/bbl. In short, it appears negotiations continue despite the recent exchange of fire. The Greenback seems less sensitive to geopolitical headlines as markets interpret recent US data with PPI ahead.
CAD is the worst G10 performers as energy weakness pressures the Loonie. On Wednesday, the BoC held rates at 2.25% with some dovish undertones. Although release and accompanying remarks from Macklem/Rogers were a repeat from April, ING notes its use of language such as “excess supply” and “looking through” inflation may have offered the Loonie. Amid the recent weakness in energy benchmarks, USD/CAD could approach the 1.40 level should US PPI print hot.
The main EUR event today will be the ECB meeting, where the Governing Council is expected to hike by 25bps, taking the Deposit Rate to 2.25%. This is justified by the assessment that the ECB is past the March baseline and is closer to the adverse scenario. Attention will be on language regarding a July move, where interest rate futures currently assign a 30% probability of tightening. EUR has been moving lower on account for recent USD upside as mentioned above. EUR/USD trades within recent parameters in the middle of a 1.15-16 band. If the ECB indicates further tightening, that could see the pair test resistance at 1.1570/80, whereas a dovish council may see recent lows of 1.15 tested, in conjunction with hot US PPI.
Lower volumes expected this evening with the World Cup kicking off at 20:00 BST. An ECB report on the 2010 World Cup showed the number of trades dropping 45% and volumes 55% lower, and Citi’s eTrading team found interbank volumes fell sharply by ~21% during 2022 World cup match windows.