Risk-on start to the week
The EUR/USD traded like a proverbial yo-yo today, with the Euro almost breaking the 1.0200 level in earlier trade. The pair has since sagged back to 1.0117, but we have seen how much any positive news out of Ukraine has buoyed European Markets, and this could be an indicator of what volatility lies ahead in the pair when the war gets thrown into the Central Bank and inflation mix. The stronger Euro did spur most EM currencies to trade on the front foot today, with the Rand hitting a low of R17.05 against the US dollar before ending the local session around the R17.10 level. Commodities have also been a major benefactor of the fresh wave of positive risk sentiment as all commodities are in the green, with Gold trading at $1,726 per ounce.
CPI holds key to direction
While we have some positive sentiment helping EM currencies today, that could have an abrupt end tomorrow with the release of the US CPI. The forecast is for CPI to have slowed down to 8.1%, with core inflation printing at 6.1%. Should inflation be lower than expected, we could see the current sentiment holding, but the kicker lies should the number print higher, which could force the Fed's hand in steeper rate hikes going forward in an effort to fight inflation. With this in mind, we expect tomorrow afternoon to be volatile if the number fails to print near consensus.
