ECB

Pablo Hernandez de Cos, an ECB policymaker, made the following remarks:

 A gradual withdrawal of stimulus is adequate in the current context

Further rate increases could be made in the coming quarters

This could reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target

That is consistent with recent comments regarding a rate hike in July. That is a foregone conclusion now, but the hawks are hyping a move to positive territory.

There is no doubt that the ECB could go all out in the fight against inflation, but the eurozone economy will face significant challenges in the coming quarters.

Oil

Oil remains on the lookout for an upside break

Oil has remained more resilient despite the recent volatility

Oil is up more than 1% on the day as it attempts to test the $115 mark again this week.

The Monday break higher saw a technical push above trendline resistance from late March to early May highs, but we are now encountering some resistance around the $115 region.

The technicals are also in agreement with a potential breakout from the wedge above, though it must clear the region of $115.37 to $116.61 to truly establish the next leg higher.

Germany

• Rising prices dampen German construction sector outlook
• The price surge is continuing to weigh on the German economy
• The Deutsche Bauindustrie (German Construction Industry) has downgraded its outlook for the sector, predicting that rising prices for building materials and energy will dampen activity throughout the year.
• According to the industry group, real-term growth in construction-related sales in the main construction sector will range between 0% and -2 percent in 2022.
• Prior to the ongoing issues with inflation and price pressures, they had projected 1.5 percent real-term sales growth.
• Despite all the talk about ‘peak’ inflation, it is important to remember that an inflation ‘plateau’ will do little to alleviate the ongoing pressure from rising prices on the global economy.

Dollar

• The dollar recovers from its early-week losses.
• The dollar (and yen) are benefiting from the more cautious risk mood.
• While the early week moves were positive, they come after a rather bleak period for risk trades in general and a strong rally for the dollar. One could argue that the retracement yesterday was the market blowing off steam after the more consistent trend of recent weeks. For the time being, the more tentative and cautious risk tones are causing the market to revert to the dollar – and yen – once more.
• EUR/USD is down 0.3 percent to 1.0515, while GBP/USD is down 0.5 percent to 1.2425, with the pair experiencing a rather firm rejection with offers lined up near 1.2500 in recent sessions.
• Additionally, the AUD/USD is down 0.4 percent to 0.7000 as the week’s push and pull continues to centre around the figure level.
• Even though the dollar’s recent rally has been relentless, there are still reasons not to fight the tide just yet. Even if firm deleveraging pressures are put on hold for the time being, the more challenging global economic backdrop and the tighter and more aggressive Fed policy are still important factors at play.
• All of this adds up to a poor risk environment, which the dollar can still benefit from.