Probability for aggressive Fed cuts, techs should underpin EUR/USD
Aug 13 (Reuters) -EUR/USD rallied above its 5-Day MA then struck a five session high as investors are leaning toward the Fed cutting more than the central bank projects. Meanwhile, technicals highlight upside potential.
U.S. July PPI increased less than expected which fueled investors' views that disinflation remains on track.
The PPI followed a report from the NY Fed released Monday indicating consumer's 3-year inflation expectations fell to 2.3% which is the lowest since the series began in 2013. https://tinyurl.com/3bt5h2c5
U.S. Treasury 2-year yields US2YT=TWEB hit a three session low, while SOFR futures prices rallied as investors priced in expectations for aggressive Fed cuts. With this, the dollar's yield advantage over the euro deteriorated as German-U.S. spreads US2DE2=RR tightened.
Technicals reinforce the potential for EUR/USD gains.
Rising daily and monthly RSIs imply upward momentum is in place.
Piercing of the down trend line off the 2023 high, consolidation of gains off the August low, and the hold above a slew of daily MAs, reinforce bullish signs.
Investors will now turn their focus to U.S. July CPI, weekly claims and July retail sales reports.
Numbers indicating softer pricing and sales, as well as rising claims, could send yields and the dollar down again.
EUR/USD may then rally toward 1.1150.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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