EUR/USD rose around 5.5% between its March low and late April high, but is primed to correct lower if Wednesday's U.S. core consumer price index for April beats the 5.5% annual rise expected.
IMM data released Friday showed net euro longs in the week ended May 2 at 173,489 contracts, a near-21% rise in a month, suggesting long positioning is overcrowded following a raft of bullish calls from currency analysts since the start of 2023.
The call is based on the view the Federal Reserve has ended its long tightening cycle and will start cutting rates, as the U.S. economy slows and the banking crisis precipitates a credit crunch.
That view contrasts with expectations for the European Central Bank where economists see more tightening due to Europe's stubbornly high inflation in a surprisingly resilient economy.
Friday's strong U.S. jobs report has thrown some doubton the dovish Fed outlook, reflected in the two-year Treasury yield rising over 35 basis points from Thursday's 3.657% low.
Strategists at Goldman Sachs and Barclays are advising clients the Fed will be less aggressive in cutting interest rates than the market is pricing, according to a Click here .
EUR/USD closed below its 21-day moving average on Tuesday, signalling the uptrend from mid-March has run its course.
A higher-than-expected U.S. CPI reading will likely encourage more unwinding of EUR/USD longs and initially target 1.0874, the 38.2 Fibonacci retracement of the March-late April rise.
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