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

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South African Gold Production YoY (Apr) Y/Y -0.2% (Prev. 17.1%)

Turkish Foreign Minister says talks with Iran were nearly complete before the recent strikes

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

Japan's PM Takaichi says that she expects to secure 100% of crude in July, without passing the Strait of Hormuz

Iran says "applicants who have received a transit permit are asked to be patient and await further guidance from the PGSA", IRIB reports; repeats that the Strait remains closed until further notice

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  • 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.

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