Global energy prices continue to fluctuate amidst the war between Russia and Ukraine. In addition, the pandemic-driven European supply chain disruptions have increased the cost of food and other resources. Therefore, it will be challenging to manage the problem of high inflation in the short term. Following the release of the final value of the March CPI data in the Eurozone last week, the preliminary value of the April CPI data is expected this week. The market forecast for April shows a slight increase in inflation for the Euro region from 7.4% in the previous month to 7.5%, a figure for keen investors to monitor closely.
Euro to rise again
Last week at the ECB forum, a key highlight was that the ECB has no intention of ramping up the tightening of its monetary policies. The notion is that inflation problems in the European Union are within control and can be self-contained in the future. However, other members later said the central bank could raise interest rates in July and retain its on-hand bond-buying program to ease inflationary pressures. After the remarks, the EURUSD pair rose to the 1.09 level. Then the strong words from the US Federal Reserve Chairman Jerome Powell limited any further gains for the EURUSD and suppressed it to the edge of 1.08.
Technically, recent EURUSD prices have hovered at the 1.07 to 1.09 level, and overall trends are still to the downside. To reflect on how the EURUSD touched 1.0660 at the end of Q2 2020, another concerning fact is that the recent decline from the beginning of 2021 is still seeking a firm bottom. Presuming the current wave rebounds again at the end of the 1.06 level, the key takeaway for market traders is that the ECB's monetary policy would first need to turn positive and then tighten.
BOJ acts on the yen
The recent decline in the yen has attracted the attention of market participants and the Bank of Japan. Since the U.S. announced the start of interest rate hikes at the beginning of the year, the dollar regained strength leading to increased spread trading, and the yen began its downward spiral. The seven major central banks have all raised interest rates due to persistent inflation in the past two quarters. The United States has actively tightened its monetary policy. The current multinational government bond yields and Japanese government bond yields have been significantly divergent, driving the yen even lower. Technically, USDJPY has challenged the 130 mark after breaking through the 125 May 2015 high. This week, the Bank of Japan is discussing interest rates. The outlook for monetary policy and the response to the yen's depreciation has attracted attention. It is advisable to monitor the action from the BOJ for guidance before making decisions.