On Tuesday, the market traded sideways. Volatility increased due to the hawkish Federal Reserve and the release of the US employment and eurozone inflation reports.
Low demand for risk assets and a strong US dollar are the result of the Federal Reserve's hawkish stance on interest rates. So far, it is unclear what the ECB will do. The Minutes of the latest ECB meeting show that the regulator is ready for aggressive measures. Still, the regulator fears stagflation, a time of high interest rates and record inflation. The regulator tried to avoid significant rate hikes. However, if it wants to curb inflation, it simply has no other choice. Therefore, the eurozone's consumer inflation data due today is so important.
The annual inflation rate in the eurozone is forecast to rise to 9.0% from 8.9% in August. Should data come in line with the market consensus, the ECB may well raise the interest rate by 0.75%, which could trigger a fall in the stock market and an increase in the euro. Otherwise, the bank will unlikely hike rates sharply, fearing economic shocks in the region. In such a case, the euro could feel some pressure.
The ADP jobs report is due today. It traditionally precedes the Labor Department's report released on Friday. Employment is expected to grow by 288K in August from 128K in July. If figures come better than forecast, the greenback may advance as the Federal Reserve is now trying to use the situation with a strong jobs market to slow down inflation, hiking rates aggressively.
Outlook:
EUR/USD
The pair is consolidating above 1.0000. If the price falls below the mark amid the release of inflation in the eurozone, it may then descend to 0.9900.
XAU/USD
The pair is trading above 1,719.55. Dropping below the mark, the quote could then reach 1,704.50.