FX Markets move moderately ahead of Lagarde's speech at the ECB forum

A rally in oil prices boosted commodity currencies on Tuesday, while the euro held onto its recent gains ahead of a speech from Christine Lagarde. The European stock markets are expected to open mixed Tuesday after another drop in German consumer confidence while the G-7 summit continues. 

FX market

A survey of around 2,000 Germans by the GfK institute found that its consumer sentiment index dropped to -27.4 points in July after posting a short-lived recovery in June with a revised reading of -26.2 points. It is mainly due to the Ukrainian war and supply chain interruptions pushing up energy and food prices.

The FX market is moving modestly on Tuesday as traders are trying to balance relief that signs of weakness in recent economic data may temper rate hikes with the worry that it could portend a stagflationary period.

Traders are anticipating the latest EU inflation and US GDP this week. Data in this set will significantly impact ECB monetary policy forward guidance. This will involve the timing of the bank's next interest rate hike cycle, which is expected to begin in July.

Euro traders await further clues from ECB

Additional clues may shed light on the future course of the common currency against the rivels. This morning, the euro encountered intraday resistance at 1.06 dollars. Additionally, it has gained momentum against the sterling, climbing in an ascending channel above 0.8617.

There has been some heat out of bets on US interest rate rises, with the peak in the US Federal Reserve's benchmark funds rate now seen hovering around 3.5% next year rather than 4% or above. Still, the dollar has not yet fallen far from its lofty peaks.

Oil prices pick up amid supply concerns

Among the new sanctions designed to curb Moscow's finances is a proposal to cap the price of Russian oil as the G7 group has vowed to stand by Ukraine "for as long as it takes." This political move sent oil prices soaring in all benchmarks. Furthermore, the oil market faces tight supply concerns as Libya and Ecuador signalled a potential reduction in global supply due to political difficulties in their respective countries. 

According to Reuters, the producer group cut its estimate for the oil market surplus in 2022 from 1.4 million barrels per day to 1 million barrels per day.

The news comes ahead of this week's meeting of OPEC+, a group of oil-exporting nations, which is expected to increase in production from August onwards. In light of the limited supply, the market is seeing higher prices in the short term. Additionally, traders are waiting for the US government's oil inventory and other data after it was not released last week because of server issues.

Events of today

In the coming trading sessions, there won't be a lot of top-tier economic data to consider, so major currencies will likely be taking their cues from the overall risk sentiment.

This week is expected to be quite hot for European inflation figures and German inflation data, due on Wednesday. Investors will also closely watch the French CPI data on Thursday and eurozone figures on Friday.