In global markets, moderate moves remain in anticipation of US inflation data and the ECB's monetary policy comments. These two events promise to set the tone for currency market trading at the start of the US trading session, while the stock market reaction is probably more extended.

For the US, overall inflation is expected to accelerate to 4.7% y/y and core CPI to 3.4% y/y, which promises to attract a lot of media attention mentioning multi-year price growth rates.

However, the markets will be watching the monthly dynamics more closely. Since the start of the year, the monthly price growth rate has gained momentum from 0.2% last December to 0.8% for April. In May, an increase of 0.4%, half of the previous month, is expected. The core CPI is expected to rise by 0.5% after a jump of 0.9% a month earlier when it was pulled up by used car prices.

The release of data firmly above these expectations will alarm the markets, rejecting the idea of a temporary spike in inflation. This would be an actual signal for the Fed to start discussing a roadmap to roll back QE and normalise interest rates.

Strong inflation has the potential to reinvigorate speculative buyers in the Dollar, although it will only get a real fundamental boost once the Fed confirms the shift towards normalisation.

The same can be said of today's ECB meeting. Investors and traders are waiting for possible policy tone adjustments, inflation forecasts and actions by the European Central Bank. The ECB may be cautious and soft, not rushing to curtail asset purchases on the balance sheet, citing 2% inflation (just above the target) vs 4.7% in the US.

The implication is that there is now a better chance that the Dollar will have a short-term opportunity to bounce back. The only question is whether the data and central bank officials will allow such an eventuality.

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