The euro has extended gains against the dollar today, ahead of what would be considered as one of the European Central Bank’s most significant policy meetings this year.
Although the European Central Bank is widely expected to keep monetary policy unchanged in June, investors are likely to be more concerned with the latest economic growth and inflation forecasts. Expectations remain somewhat elevated over the ECB potentially signaling an end to (quantitive easing) QE at the meeting. While hawkish comments from ECB officials and accelerating inflation have fuelled speculation over QE coming to an end, this could be a classic case where markets may be setting themselves up for disappointment. With economic growth in the Eurozone slowing in recent months and lingering political risk in Italy weighing on sentiment, Mario Draghi may be hesitant to reveal a QE end-date. This possible reluctance may leave investors empty-handed and ultimately expose the Euro to heavy losses.
With regards to the technical picture, the euro/dollar (EUR/USD) currency pair is starting to look bullish on the daily charts. Prices are trading above the daily 20-period simple moving average while the MACD is in the process of crossing to the upside. A solid daily close above the 1.1820 level could encourage an incline higher toward 1.1890. Alternatively, if the 1.1820 proves a stubborn resistance, then prices may descend back toward 1.1750.
Commodity spotlight: Gold
Gold prices have staged a solid rebound despite the Federal Reserve raising U.S. interest rates by 25 basis points yesterday evening.
There is a suspicion that the yellow metal’s appreciation could be off the back of dollar weakness. With investors simply engaging in a bout of profit-taking on the Greenback following the U.S. interest rate increase, gold could appreciate further in the short term. However, gold’s gains are likely to remain limited by heightened expectations over two more US interest rate increases this year.
Taking a look at the technical picture, the decisive breakout above the $1,300 per oz. psychological level could invite an incline higher toward $1,324.