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Jan 07 - 01:55 PM

EUR/USD - COMMENT-EUR/USD Downside Risks Remain After U.S. Data

By Christopher Romano  —  Jan 07 - 10:47 AM

EUR/USD rose on Friday, overcoming a mixed reaction to conflicting U.S. employment data in the monthly non-farm payrolls report nL1N2TN0X5, but longs shouldn't rest easy as the Fed's ongoing reaction to high inflation should keep downside risks intact.

U.S.
unemployment fell more than expected to 3.9%, average hourly earnings surprised to the topside -- with November's also revised upward -- while December's participation rate matched November's upwardly revised 61.9% nAQN0AEXMP.

The data suggests the labor market remains tight even though overall payrolls growth disappointed forecasts, fueling investors expectations for a more hawkish Fed nL1N2TN0YH.

Ten-year U.S. Treasury yields US10YT=RR struck a 10-month high while two-year yields hit an 11-month peak.
Eurodollar EDH2 prices fell as investors factored in a higher probability of the Fed initiating rate hikes in March.

December CPI will be a key release before the January 25-26 Fed meeting.
An upside surprise would reinforce aggressive Fed expectations, which would push the dollar and rates higher.

That could lead EUR/USD to break the bear pennant base on daily charts, end its consolidation phase and make a run at the 1.1000 area.

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Source:
Refinitiv IFR Research/Market Commentary

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