Attention returns as inflation concerns grow

By FXTM Senior Research Analyst Lukman Otunuga

Asian stocks were volatile on Tuesday morning as there were no clues from Wall Street all night for the US Memorial Day holiday.

Nonetheless, there is a sense of caution in the air after a measure of bright red inflation from Germany raises concerns about how aggressive the ECB should be to tame inflation beasts.

Soaring oil prices rubbed salt on wounds and exacerbated inflation concerns after the European Union agreed to cut oil imports from Russia.

In the currency arena, the dollar has risen slightly, but while gold prices remain within range, they are heading for their first monthly fall in five months. European futures show a negative open on Tuesday morning as inflationary concerns arouse risk.

Investors juggle, so cautious outlook may continue for the rest of the week Inflation concerns, Fear of recession, and ongoing geopolitical risks. Sentiment may also be affected by major economic reports from major economies, including the US employment report on Friday.

Germany’s inflation rate is approaching its highest level in 50 years

Last week, ECB Governor Christine Lagarde raised expectations for banks to raise interest rates in July and September. These expectations are boosted by Germany’s latest inflation rate, with consumer prices rising 7.9% in May from 7.4% in April, the fastest pace since early 1974.

Given the geopolitical risks and how upward pressures on energy, commodities and food prices can affect inflationary beasts, this will encourage the ECB to take action.

The latest eurozone inflation data is released Tuesday morning and is expected to reach record highs. Looking at the technical situation, EURUSD could challenge 1.0850 if 1.0700 proved to be reliable support.

Does the US Employment Report provide a lifeline for the dollar?

The dollar is expected to fall monthly, despite rising to levels not seen 20 years ago two weeks ago.

Buying sentiment towards greenbacks hit as less last week Hawks rather than fear The Federal Reserve Board kept the bulls away. However, if Friday’s US monthly salary report exceeds expectations, the King Dollar may have the opportunity to fight back. The market expects the US economy to create 329,000 jobs in May, the unemployment rate to fall to 3.5% and the average hourly wage to rise by 0.4%.

When it comes to the technical situation, the Dollar Index (DXY) certainly needs some love. Prices are under pressure on the daily chart, with 101.00 serving as the next major level of interest. If the bull strikes back and exceeds this level, there may be a move towards 103.00 on the card.

Bullish oil for summer demand

Oil bulls are doing well after the EU has agreed to cut oil imports from Russia. This development will take place during the expected high demand during the summer driving season in the United States and Europe.

As geopolitical risks continue, commodities have the potential to increase profits, thanks to improved demand outlooks and signs of tight supply. Fundamentals support the Bulls, but there are some themes that may create some obstacles in the future. If China is forced to renew its Covid-19 limits, especially if it continues to impact the growth of the world’s largest energy consumers, this could weigh on demand outlook.

Looking at the technical situation, Brent seems to be rising on the daily chart. If the upward momentum continues, prices could test $ 123.70 and $ 130.00, respectively. Persistent weaknesses below $ 120 could fall towards $ 114.40 and $ 100.00.


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