The dollar heading for the largest monthly loss in a year due to rising risk appetite

Stock markets are currently on a rebound against a backdrop of a weaker dollar and declining Treasury yields, as the dollar dropped for a second week in a row, and the 10-year yield dipped for the third week in a row. It would appear that the markets are anticipating the top for both the greenback and yields, based on the reversals that have already been seen because inflationary pressure in the US is believed to have peaked in the short term.

Markets overview

Considering the three-day holiday in the US, which means lower liquidity than usual, we may find that gold remains nailed to its tight range of around $1,850 until a new catalyst emerges.

On Monday, crude oil prices rose to their highest level in nearly two months as traders awaited a decision from the European Union regarding an embargo on imports of Russian crude oil.

After better-than-expected economic data added hope that the Fed may not need to tighten monetary policy as much as previously feared, all three major indexes rallied on Friday, snapping their longest weekly losing streaks in decades. The move will likely lead to a positive European open on Monday.

Events of today

May's preliminary German CPI data is among today's critical macro announcements. These data are expected to show that inflation has risen to 8.1% on the EU harmonised measure and 7.6% on the headline measure, adding fuel to the fire that the ECB has been dragging its feet on rate hikes.

Chris Waller, a member of the FOMC who has been among the more hawkish in recent weeks, will also be speaking.

On Tuesday and Wednesday, China is scheduled to release forward-looking manufacturing and non-manufacturing PMIs, which will be studied for clues about the extent of the economic slowdown the COVID restrictions have had on the world's second-largest economy.

The EU governments will also meet later in the session to discuss the sixth package of sanctions against Russia due to its invasion of Ukraine, including a possible ban on Russian oil.

It is unlikely that a material improvement in the global risk environment will be coupled with further USD-adverse widening of short-term interest rates. As a result, the dollar is expected to find a floor soon around the 50-day EMA.