LiveWire

The European Central Bank is set to announce its interest rate decision on Thursday, with markets betting it will hike by 0.25%, a minor move as the region battles with high inflation and faces a crushed consumer sentiment due to a poor outlook that includes energy shortages for next winter. Nonetheless, the ECB could be slightly more aggressive, and with the meeting in just a few days, the euro is seeing some strength against the dollar. Looking at technicals, the setup is encouraging, with a resistance level at around 1.0145 to break in order to continue higher. With that in mind, the central bank's press conference on Thursday will be critical. 

The dollar is finally pulling back slightly and it is enough for the Swiss franc to gain popularity. On a technical picture, selling the USDCHF (buying francs) is starting to look more and more encouraging, although a few more days may be needed to confirm a clear reversal in the trend. On the dollar side, there are still plenty of reasons for it to remain strong, so long as the Fed doesn't pivot to a less aggressive tightening policy, and the recent inflation report is not giving it a reason to pivot just yet.

Japanese Prime Minister Kishida's strong election win gives him and his party a three-year time frame to act on his agenda to make capitalism fairer, greener, and maintain the same course on economic policy including central bank stimulus. With no signs of the Bank of Japan changing course, the yen is weakening further against the dollar, pushing past a 24-year low. It is difficult to say how low could the yen go against the dollar, but with such a wide difference in central bank policies, the downtrend could continue.

The euro continued lower towards EURUSD parity, briefly slipping below 1.01, before rebounding. Meanwhile, the Dollar Index (DXY) jumped a further 0.37% to 107.5. The parity (1.0) is the next psychological level for the EURUSD, and the next stop, if it continues lower, could be 0.9850, a level that options bets signal as a potential short-term bottom. The rapid decline in the euro is piling pressure on the European Central Bank to act to avoid a Eurozone crisis amid the challenges of the rapid deceleration of the European economy and the aftermath of the war in Ukraine. 

The pound strengthened and UK stocks rose on reports that Prime Minister Boris Johnson is planning to resign. Investors said the news may spell some initial relief for UK assets, which have been battered by the country’s high inflation, weak economy and political uncertainty.