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EUR/USD - Hawkish vs Dovish

The currency pair has seen less volatility and decisiveness over the past 48 hours as traders hold for further clarification to be given by the European Central Bank tomorrow, and with the US Consumer Price Index on Friday. Both events are scheduled to demonstrate whether they will take a hawkish or a dovish approach moving forward.

The ECB’s decision regarding the size of the interest rate hike could determine many things for the markets. The central banks of Australia and India have already announced a 50-basis point increase respectively, it's now time to see if the ECB will join them. The incentive seems to be already there with inflation hitting 8.1% in May within the Eurozone.

An ECB rate hike this week would drag the interest rates out of the negative one-half of a percentage point that it stands at now - this has the potential to boost EUR/USD past the current resistance levels (1.07245). However, if the ECB takes a more dovish approach, there is a chance that the currency pair remains in its downward bias, with support levels at 1.06712.

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USD fate hinging on inflation figures

The US Dollar remains at the mercy of Friday’s CPI release, which could show traders whether inflation has peaked in the US. If the CPI data shows that consumer price growth has hit the ceiling, potentially making the Fed rethink their hawkish stance, the markets risk-averse approach might begin to waver.

On the other hand, if the CPI figures show that there is room for further rate hikes, the Fed is likely to turn even more hawkish. As a result, this would propel the US Dollar Index high and keep the 10-year Treasuries above the 3%, while other assets, such as growth stocks and gold, suffer.

EUR gains against JPY

The currency pair has seen an increase of 1.17% this week, soaring to 7-year highs at roughly 144.117. With respect to technical analysis, EUR/JPY remains biased towards the upside, however Bollinger Bands, alongside the RSI, shows increased volatility. At over 70% the RSI shows that the pair is in overbought territory, which could be an indication of a potential mean-reversion before the bias continues.

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Global Market Moving Events

In other news , over the past 24 hours, the key event for the Eurozone was the official adoption of the sixth package of sanctions against the Russian Federation, which is considered to mostly affect energy imports. In particular, according to the document, within six months, the Eurozone countries will have to abandon the purchase of oil transported by sea completely, and within eight months – the petroleum products. Thus, according to European Commission President Ursula von der Leyen, by the end of 2022, the consumption of Russian "black gold" in the Eurozone will be reduced by 90%, except for supplies via the Druzhba oil pipeline. Experts say this may act as a catalyst for a new wave of growth in consumer prices, which may rise by 10.0% by autumn, putting unprecedented pressure on the euro quotes.

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