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Jun 11 - 12:55 AM

Danske: Upside Risks for EUR/USD on Soft US CPI Print This Week

By eFXdata  —  Jun 10 - 04:30 PM

Synopsis:

Danske Bank highlights potential upside risks for the EUR/USD pair if the upcoming US CPI data for May shows softness. Despite a recent decline due to a stronger-than-expected jobs report, Danske sees the CPI data as more pivotal for the pair's direction than the FOMC meeting, with the possibility of dovish reactions supporting the euro.

Key Points:

  1. Recent Market Movements:

    • EUR/USD declined by a full figure following a stronger-than-expected US jobs report, now trading below 1.08.
    • The jobs report surprised markets, with figures stronger than all 77 Bloomberg consensus estimates, leading to broad support for the USD due to rising US rates.
  2. Focus on US CPI Data:

    • This week's US May CPI data is viewed as more critical for EUR/USD than the upcoming FOMC meeting.
    • A soft CPI print could lead to lower yields and a weaker USD, providing support for EUR/USD.
  3. Key FX Driver:

    • The timing of potential Fed rate cuts remains the key FX driver for Danske.
    • The market has been consistently influenced by US data and Fed pricing throughout the year.
  4. Near-Term EUR/USD Bias:

    • Danske maintains a near-term bias towards the upside for EUR/USD.
    • They see downside risks to the CPI print, which could lead to dovish market reactions following the FOMC meeting.
  5. Fed Rate Cut Expectations:

    • Danske continues to expect the Fed to cut rates twice this year, starting in September.

Conclusion:

Danske Bank anticipates that a soft US CPI print this week could lead to lower yields and a weaker USD, providing upside risks for the EUR/USD pair. While the stronger-than-expected jobs report has temporarily supported the dollar, the focus remains on US CPI data and the potential for Fed rate cuts, which could create a more favorable environment for the euro in the near term.

Source:
Danske Research/Market Commentary

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