EUR/USD longs need yen bulls to get out of the way
July 24 (Reuters) -EUR/USD erased its losses after piercing the 21-DMA and striking a 10-session low Wednesday and longs could gain some traction if aggressive yen buying abates.
U.S. existing home sales hit a 7-month low for June and July S&P Global PMIs indicated companies are losing pricing power and that employment growth is slowing.
The data helped U.S. Treasury two-year yields US2YT=TWEB trade below 4.40% and hit a 5-month low.
The yield move eroded some of the dollar's yield advantage over the euro. German-U.S. 2-year spreads, which EUR/USD is typically correlated with, hit their tightest since July 16 and neared resistance in the -165/-164bps area.
EUR/USD was unable to mount a significant rally despite those influences.
Aggressive yen buying sent EUR/JPY to a 2-1/2-month low of 166.165. The pair had traded near 175.50 on July 11. The sharp EUR/JPY fall is likely blunting influences from U.S. data and yields.
Should EUR/JPY selling abate or a rally ensue EUR/USD longs may gain some traction, but they still face major risks from upcoming U.S. economic data.
U.S. Q2 GDP, weekly claims are due Thursday while June PCE is released Friday.
Should results indicate slowing employment and economic growth and disinflation is persisting EUR/JPY's impact may evaporate.
U.S. yields and the dollar could sink in that scenario as investors will expect the Fed to become less restrictive, which would increase EUR/USD upside risks.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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