Nigeria inflation declines further in May ECB in focus

In an encouraging development, Nigeria’s inflation has eased to 11.6% in May, the lowest level seen in more than two years.

With consumer prices slowly edging closer to the Central Bank of Nigeria’s target band of 6%-9%, an interest rate cut seems likely before year-end.

The combination of easing inflationary pressures, improving economic fundamentals and ongoing foreign exchange stability could encourage the CBN to cut interest rates in the second half of 2018.

Euro could crumble if ECB disappoints

The Euro has extended gains against the Dollar today, ahead of what could be considered as one of the European Central Bank’s most significant policy meetings this year.

Although the ECB is widely expected to keep monetary policy unchanged in June, investors are likely to be more concerned with the latest economic growth and inflation forecasts.

Expectations remain somewhat elevated over the ECB potentially signalling an end to QE at the meeting. While hawkish comments from ECB officials and accelerating inflation have fueled speculation over QE coming to an end, this could be a classic case where markets may be setting themselves up for disappointment.

With economic growth in the Eurozone slowing in recent months and lingering political risk in Italy weighing on sentiment, Mario Draghi may be hesitant to reveal a QE end-date. This possible reluctance may leave investors empty-handed and ultimately expose the Euro to heavy losses.

With regards to the technical picture, the EURUSD is starting to look bullish on the daily charts. Prices are trading above the daily 20 Simple Moving Average while the MACD is in the process of crossing to the upside. A solid daily close above the 1.1820 level could encourage an incline higher towards 1.1890. Alternatively, if the 1.1820 proves a stubborn resistance, then prices may descend back towards 1.1750.

Hawkish Fed raises interest rates

In a widely expected move, the Federal Reserve has raised its key interest rate by 25 basis points for the second time this year.

The central bank struck a hawkish tone in the latest policy statement and even surprised markets by forecasting two additional rate hikes in 2018. With growth expected to remain solid in the United States and inflation projected to accelerate, the Fed could embrace a more aggressive approach towards monetary policy normalization.

Sentiment towards the US economy is likely to receive a boost following the upgraded economic forecasts, especially when considering how unemployment is projected to fall to a 50 year low this year.

All in all, the relatively positive assessment of the US economy and rising inflation expectations may fuel market speculation of higher interest rates.

With two additional rate increases now expected by the end of the year, the Dollar has the potential to appreciate further.

Commodity spotlight – Gold

Gold prices have staged a solid rebound despite the Federal Reserve raising US interest rates by 25 basis points yesterday evening.

There is a suspicion that the yellow metal’s apple off than could be off the back of Dollar weakness. With investors simply engaging in a bout of profit-taking on the Greenback following the US interest rate increase, Gold could appreciate further in the short term.

However, Gold’s gains are likely to remain limited by heightened expectations over two more US interest rate increases this year.

Taking a look at the technical picture, the decisive breakout above the $1300 psychological level could invite an incline higher towards $1324.