Investors eye ECB meeting, Philly Fed Manufacturing Index and US jobless claims in focus

The euro rebounded cautiously on Thursday as investors braced for the European Central Bank's first interest-rate increase since 2011 and the scheduled reopening of a key Russian gas pipeline later in the day. Meanwhile, the yen shrugged off the Bank of Japan's decision to keep its ultra-easy monetary policy unchanged.

ECB joins hike rate club

As global economic conditions worsen, equity markets have found it increasingly difficult to maintain the positive mood experienced during the first half of the week. The safe-haven USD also benefited from elevated US Treasury bond yields, which helped stall its recent sharp decline from a two-decade high. Yet, declining expectations of an aggressive rate hike by the Federal Reserve in July limited further gains for the dollar to overcome the multidecade high anytime soon. Furthermore, the resumption of Russian gas supply through Nord Stream 1 amid expectations the European Central Bank would hike rates offered some support to the common currency. This helped to keep it above 1.020. Although recession risks are apparent, the markets are split on whether ECB policymakers will deliver a previously announced 25-basis-point increase or a half-point rise. According to forecasts, the benchmark rate will rise by 0.25%. However, it seems the market is already pricing in a 0.50% rate lift; hence, any moves below that are unlikely to sustainably attract buyers. It is possible, however, to keep the meeting interesting by taking qualitative action regarding Quantitative Easing (QE).

Gold is set for more drop

Under $1,700.00, gold has broken below psychological support on Thursday. The asset has recorded a new 11-month low of $1,690.04. It is expected to continue declining as it has yet to display any signs of recovery. Bears have been unleashed since the precious metal broke the consolidation pattern to the downside. The price of gold is likely to return to its yearly lows, near $1,677.

DXY lost a critical support

In currency news, the US dollar index (DXY) is eyeing the south-side direction after failing to reverse the pullback move on the back of rising bond yields. At 107.26, the asset faced stumbling blocks and has given up its critical support of 107.00. If the DXY breaks below Wednesday's low at 106.39, the bears will strengthen further, and the cushion will shift lower to around 105.00.

Events of today

Aside from this, ECB President Christine Lagarde's comments at the post-meeting press conference may add some volatility to the euro. In addition to USD price dynamics, this factor will determine the next leg of EUR/USD's directional move. 

On the data front, the US economic docket - featuring the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims will be released later today.