Gold, EUR/USD, GBP/USD, USD/JPY; Eurozone inflation, US core personal consumption expenditures

Most read: EUR/USD trading setup – continuation of the uptrend depends on the breakout of resistance

The new week will start slowly, with US and UK markets closed on Monday – the former for Remembrance Day and the latter for the bank holiday. Holidays in these financial centers mean lower trading volume, which may result in slower price movement. But there’s a problem: Poor liquidity can sometimes amplify price movements if unexpected news hits the wires, with fewer traders to accommodate buy and sell orders. However, caution is warranted for those who still decide to trade on Monday.

As we progress through the week, we expect a relatively quiet period with few high-impact events likely to spark significant volatility. However, the scene may change on Friday with the release of important economic indicators. On one side of the Atlantic, Eurozone CPI numbers for May will be released. On the other side of the pond, we will get consumer spending data for core prices, which is the Fed’s most closely watched measure of inflation.

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Euro-zone

The European Central Bank is likely to cut borrowing costs from a record 4% at its next meeting in June. However, the extent of additional interest rate cuts will depend on inflation expectations. In this sense, the May CPI report will be crucial, providing valuable insights into recent price trends within the regional economy, which will play a pivotal role in directing the course of monetary policy.

Analysts expect euro zone inflation to rise to 2.5% year-on-year this month from 2.4% in April, with the core measure expected to remain steady at 2.7%. A slight rise in the key gauge may not prevent the European Central Bank from pulling the trigger next month, but an upward surprise could prompt the institution to adopt a more cautious approach to future easing. In light of these developments, EUR forex pairs may experience increased volatility as the weekend approaches.

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Core PCE deflator data will also be released on Friday. Consensus estimates point to a 0.3% increase in April, with the annual rate falling to 2.7% from 2.8, representing a small but favorable directional move. A downward surprise could revive optimism that the deflationary trend, which began in late 2023 but stalled earlier this year, is back on track, strengthening the FOMC’s case for pivoting to a more flexible stance sometime in the fall. . This should be bearish for the US dollar but positive for stocks and gold.

Conversely, if inflation numbers exceed expectations, interest rate expectations may shift in a hawkish direction, delaying the Fed’s timeline for initiating interest rate cuts. In this scenario, November or December could become the new baseline for a possible move by the US central bank. Such a development could push bond yields and the US currency higher, creating a more difficult environment for stocks and precious metals.

For an in-depth look at the variables that could impact the financial markets in the coming week, explore the comprehensive forecasts and analysis provided by the DailyFX team. Our expert analysis may provide you with the ability to navigate the dynamic market environment and make smart trading decisions.

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