MARKETS RISE BEFORE US CPI, WITH THE FED IN FOCUS

Following encouraging signs from Wall Street overnight when the S&P 500 rose to its highest level in more than a year, Asian markets traded higher on Tuesday. The People's Bank of China's decision to lower short-term lending rates has increased risk appetite, raising optimism that the Federal Reserve could pause its tightening cycle. Due to a broad list of high-risk events, bank decisions and top-notch data, the upcoming few days are expected to be very dramatic for the world's financial markets.

As attention turns to the upcoming ZEW economic confidence readings for Germany and the Euro area, European futures indicate to a positive opening. In terms of currencies, the dollar has dipped ahead of today's major U.S. inflation data release. Due to the demand forecast, oil prices are trading close to their lowest level in almost three months, while gold is still on hold.

FOCUS ON US CPI AND FED MEETING

The most recent US inflation report, which have slowed again in May after easing somewhat in April, will be the focus of all attention. Following a 0.4% increase in April, the headline CPI is expected to grow by 0.1% month over month while the annual headline is expected to decrease to 4.1% from 4.9%. The core CPI data will increase by 0.4% in May while the annual reading eases to 5.2% from 5.5% in April, will be the main focus. The Fed's quest to raise interest rates is finally coming to an end, which may increase expectations. As an alternative, a sticky wager on US interest rates staying higher for longer.

The Fed's decision to keep interest rates where they are will be the main topic of discussion on Wednesday. According to Fed funds futures, a 25bps increase is likely 28% of the time. However, if Tuesday's inflation estimate comes in higher, expectations may change. According to information from Fed Chair Jerome Powell's press conference, this conference will end with a hawkish hold. We'll be closely monitoring the updated dot plots. If the central bank decides to abruptly raise interest rates.

EUR/USD IN THE LIMELIGHT

The European Central Bank meeting on Thursday may be coming up as the EURUSD currency pair gets ready for a week packed of events. But the key question is whether the central bank's cycle of rate hikes is ready to cease, especially after the eurozone entered a technical recession at the start of the year. For the past two weeks, the EURUSD has been trapped in a range, with support at 1.0686 and resistance at 1.0811. A path toward 1.0845 and 1.0900 might be made if the pair breaks above 1.0811. Prices may test 1.0635 on a drop back towards 1.0686.

GOLD: COMMODITY SPOTLIGHT

Today's US inflation report and the Federal Reserve's policy decision on Wednesday, gold made a slight uptick. The precious metal can be sensitive to the most recent US CPI report, and it will probably decline if the Fed continues with its hawkish pause. A sudden increase in interest rates might set off a sharp decline approaching $1900 levels that have not been reached since mid-March. Prices are still stuck in $1935 and resistance at $1983 for the time being.