MORNING OVERVIEW
The ECB’s interest rate decision is set to take place later on today. The majority of market participants are currently anticipating the bank to hike rates by 25 basis points, with EUR OIS currently implying a 99% probability for such a scenario to materialize. In turn, the possibility of a rate hike may already be priced into the market; therefore, attention could turn to ECB President Lagarde’s press conference post-decision, where market participants may be looking for clues into the bank’s future interest rate path moving forward.
The objective: Key focus on the EUR with the ECB’s decision set to take place today. Emphasis on ECB President Lagarde’s press conference and the bank’s accompanying statement
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| S&P 500 | 7656 | +0.26% | US CPI rates in focus |
| DXY | 98.728 | -0.09% | US CPI rates/ECB decision may influence the dollar |
| EUR/USD | 1.16404 | +0.06% | ECB decision today |
| Gold | 4414 | +0.36% | Geopolitical tensions |
| Brent Crude | 101.278 | +0.07% | Iran says it’s ready for an intense war |
KEY MARKET THEMES
01 — ECB decision
The ECB’s interest rate decision is set to take place today, resulting in the EUR taking the main stage for the day. In particular, the majority of market participants are expecting the ECB to hike rates by 25 basis points during their monetary policy meeting today. Moreover, when looking at the EUR OIS , the probability of a 25bp rate hike is so high that it may already be priced into the market by participants. Hence attention may turn to the ECB’s accompanying statement and ECB Lagarde’s press conference where any indication of a continued rate hike cycle could provide support for the EUR. However, any form of hesitation could instead weigh on the common currency. From our view we would be interest in ECB Lagarde’s comments over the recent hike in oil prices.
Market implication (EUR) : BULLISH
02 — Brent holds above $100 per barrel
The narrative surrounding the oil market takes our number two spot today, with Iran stating that it is ready for a more intense conflict, vowing to resist the US naval blockade and warning that its attacks may intensify. The comments by Iran showcase a willingness to further escalate tensions in the region and could lead to prolonged hostilities between the US and Iran on a military level. In turn as the war intensifies the global oil supply chain stemming from the strait of Hormuz may be further tightened, resulting in higher oil prices. Therefore, should Iran’s comments come to fruition we may see oil prices gaining as a result.
Market implication (OIL): Bullish
03 — US PPI rates due out today
The US PPI rates for August are set to be released today. On all counts the PPI rates are anticipated to showcase an increase from their prior rates. In turn should the rates come in as expected or higher, it could provide support for the greenback, whereas a lower than expected rate could weigh on the dollar. Although we should note considering the ECB’s decision today, the financial release may be of a secondary nature.
Market implication (USD) : Bullish
WHAT MATTERS TODAY
ECB Interest rate decision
Time (GMT+2): 15:15
Expected: 2.50%
Previous: 2.25%
Potential market reaction:
Considering the EUR OIS implications, the possibility of a rate hike may be fully priced into the market. Attention turns to the bank’s accompanying statement which will be released with the bank’s decision. Any implications of further rate hikes may aid the EUR and vice versa.
ECB President Lagarde’s press conference
Time (GMT+2): 15:30
Expected: N/A
Previous: N/A
Potential market reaction:
Any hawkish comments from Lagarde could aid the EUR and vice versa. However, our focus will be on any comments regarding the ongoing war in the Mid-East and how persistent high energy prices may bake into the bank’s considerations for future monetary policy decisions.
ASSET FOCUS
[GOLD / COMMODITIES]
Gold appears to be moving in a sideways fashion for now after failing to clear our 4330 (S1) support line.
KEY LEVELS
Resistance (R1): 4520
Resistance (R2): 4695
Support (S1): 4330
Support (S2): 4180
Technical View: NEUTRAL
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| Equities | Neutral | US CPI rates |
| USD | Neutral | US CPI rates |
| Gold | Neutral | Geopolitical tensions |
| Oil | Bullish | Iran prepared for military escalations |
RISKS TO THE VIEW
The biggest risk to our view is the high energy prices and how it may influence the ECB
Heightened energy prices fuel inflation concerns across the globe. Thus, depending on how ECB Lagarde answers in her press conference as to how it may influence the bank’s upcoming decisions, we may see heightened volatility in the EUR.
TRADING SPHERE VIEW
Bullish for oil prices
Our base case:
Iran has stated a willingness to escalate tensions and is prepared to do so, should the US’s attacks continue. In turn, we may see oil prices remaining at elevated levels for the foreseeable future.
What would change our view:
A genuine attempt to de-escalate the situation
TODAY’S WATCHLIST
01 ECB Lagarde’s Speech
02 ECB Interest rate decision
03 US PPI rates
