The situation in the Middle East and US inflation continue to support demand for the dollar against risk assets.

As the report indicates, the acceleration in overall inflation to 4.2% in May is a signal that cannot be ignored. Historically, such an inflation level typically suggests a potential rate hike by the Federal Reserve, and consequently, a strengthening of the national currency. However, given the current situation, where core inflationary pressures remain noticeably more subdued, the market appears to view this acceleration as a temporary phenomenon driven by developments in the Middle East.

The softer core inflation, which excludes volatile food and energy prices, indicates that inflation expectations among consumers and businesses may be more stable. This gives the Fed some degree of leeway in its actions.

Today, traders are in a state of heightened anticipation, as the publication of the European Central Bank's decision on the main interest rate, along with the subsequent press conference by ECB President Christine Lagarde, promises to be a key event of the day. All eyes are on Frankfurt, where another step towards normalizing inflationary pressure is expected—a 0.25% rate hike. Although this move is anticipated, it is traditionally interpreted as a positive signal for the euro, potentially contributing to its strengthening against major world currencies.

The anticipated tightening of European Central Bank monetary policy reflects the central bank's desire to curb inflationary pressure, which, despite some signs of stabilization, remains a focal point. The rate hike aims to make borrowing more expensive, thereby cooling consumer demand and investment activity, which in turn should help slow price growth. For the euro, a currency whose value is largely determined by interest rate differentials against others, rising interest rates serve as an undeniable trigger.

The key moment, apart from the rate decision itself, will be Christine Lagarde's press conference. It is here that market participants will look for confirmation of the ECB's future intentions, as well as the tone and rhetoric that may set the direction for the euro's movement in the coming weeks.

The absence of significant macroeconomic data from the United Kingdom today leaves the GBP/USD pair once again devoid of internal catalysts for a substantial recovery. The geopolitical situation in the Middle East remains the primary factor influencing sentiment in the GBP/USD currency pair.

If the data aligns with economists' expectations, it would be better to act based on the Mean Reversion strategy. If the data significantly exceeds or falls short of economists' expectations, it is best to utilize the Momentum strategy.

Momentum Strategy (Breakout):

For the EUR/USD Pair:

• Long positions on the breakout of the level 1.1556 could lead to the euro rising toward 1.1579 and 1.1601.
• Short positions on the breakout of the level 1.1529 could lead to the euro falling toward 1.1506 and 1.1480.

For the GBP/USD Pair:

• Longs on the breakout of the level 1.3400 could lead to the pound rising toward 1.3435 and 1.3471.
• Shorts on the breakout of the level 1.3370 could lead to the pound falling toward 1.3336 and 1.3307.

For the USD/JPY Pair:

• Longs on the breakout of the level 160.60 could lead to the dollar rising toward 160.90 and 161.15.
• Shorts on the breakout of the level 160.45 could lead to the dollar declining toward 160.24 and 160.00.

Mean Reversion Strategy (Return):

For the EUR/USD Pair:

• Shorts will be sought after an unsuccessful breakout above 1.1565 on a return below this level.
• Longs will be sought after an unsuccessful breakout above 1.1530 on a return to this level.

For the GBP/USD Pair:

• Shorts will be sought after an unsuccessful breakout above 1.3399 on a return below this level.
• Longs will be sought after an unsuccessful breakout above 1.3360 on a return to this level.

For the AUD/USD Pair:

• Shorts will be sought after an unsuccessful breakout above 0.7019 on a return below this level.
• Longs will be sought after an unsuccessful breakout above 0.6994 on a return to this level.

For the USD/CAD Pair:

• Shorts will be sought after an unsuccessful breakout above 1.3957 on a return below this level.
• Longs will be sought after an unsuccessful breakout above 1.3924 on a return to this level.