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Feb 09 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Bulls On Edge, US CPI May Send Them Over

By Christopher Romano  —  Feb 09 - 10:10 AM

EUR/USD retreated back near flat on Friday after hitting a 5-session high in the wake of U.S. CPI revisions, with longs suffering a lack of confidence as downside risks mount.

December CPI was revised lower but November and October upward, which may have dampened some investors' hopes that disinflation was entrenched in the U.S. economy.

After some wild post-data swings U.S. yields eventually hit new session highs as investors lowered the probability for Fed cuts in 2024 IRPR and are now discounting roughly 110bps of easing.

The 2-year yields US2YT=RR rallied towards key resistance in the 4.5% area, which helped erode some earlier German-U.S.
spread tightening, weighing on EUR/USD.

Technicals highlight downside risks.
Monthly RSI is falling and a rising wedge continuation pattern, a bearish signal, has formed on daily charts.

January CPI is in focus.
An upside surprise would fuel concerns that inflation is rising again and would likely drive investors to further reduce the probability for Fed rate cuts.

Such an outcome could push U.S. 2-year yields above 4.5%, potentially helping the dollar rally.
That could lead EUR/USD to break the rising wedge base as shorts take control and target the 1.05000 area.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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