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Europe set for quiet open, UK CPI and Fed in focus

Like the G7 meeting at the weekend, the political interest in the meeting between Donald Trump and Kim Jong-un was enormous, but the markets had a muted reaction. 

The meeting between the two politicians in Singapore was historic as it was the first time a US president met a North Korean leader. The two premiers discussed security and President Trump is expecting total denuclearisation of the Korean peninsula down the line. Critics of the summit point out that no details were given of the timeline in which North Korea needs to start scaling back its nuclear ambitions. Stock markets initially reacted well to meeting, but the positive momentum ran out of steam.

The cooling of UK wages in April has set back the prospect of the Bank of England (BoE) tightening its monetary policy. UK average earnings excluding bonuses grew by 2.8%, which was a decline from March’s 2.9%. Last month, Mark Carney, the Governor of the BoE lowered his growth forecast, and the latest earnings figures point to a less rosy outlook.

At 9.30am (UK time) the latest British inflation data will be released. The headline annual CPI rate is expected to rise to 2.5% from 2.4%, while the core CPI rate is tipped to hold steady at 2.1%. The British worker has been enjoying a rise in real income lately, as the average earnings have been outstripping the cost of living. Yesterday we saw average earnings grow at a slower pace, and a rise in the cost of living would be a double negative for consumers.

Yesterday the inflation rate in the US jumped to its highest level in over six years. The headline CPI rate came in at 2.8%, up from 2.5% in April. Given that oil hit a 42-month high in May, it comes as no surprise the cost of living spiked. The core CPI rate also ticked up from 2.1% to 2.2%. This underlines the actual increase in demand, which suggests consumers are keen to spend.

The Federal Reserve will announce their interest rate decision at 7pm (UK time), and the press conference will follow at 7.30pm (UK time). The consensus is for an interest rate hike of 0.25% to 2%. The jury is still out whether the US central bank will hike interest rates in September and December, or just December. The press conference could provide clues as to what the Fed will do at the back end of the year.

EUR/USD – has been pushing higher for over a week, and if 1.1830 is cleared, it might pave the way for 1.2000 to be tested. Support might be found at 1.1700, and a break below it might bring 1.1617 into play.

GBP/USD – is continuing its bounce back, and if it moves above 1.3450, it could target 1.3594 – the 200-day moving average. A move lower might encounter support at 1.3300, and a break below it might put 1.3204 on the radar. 

EUR/GBP – has been broadly moving higher since April, and if it clears 0.8833 – 200-day moving average, it might target 0.8900. Beyond that, bulls might look to 0.8970. Support might be found at 0.8725.

USD/JPY – has been in an upward trend since mid-March, and if it can hold above 110.17 – 200-day moving average, it might target 111.39. Support might be found at 108.92 – 50-day moving average. 

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