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May 26 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Longs May Have To Deal With A Fed That Does Not Pause

By Christopher Romano  —  May 26 - 10:40 AM

EUR/USD fell Friday as U.S. rate SRAU3 and dollar gains helped to erase the overnight rally, and a further slide may be on the cards as U.S. data sows doubts about a pause in Fed hikes while expectations of more tightening increase.

Data suggests the probability of a U.S. recession will decrease while inflation may be rising again. April consumer spending and core PCE came in above estimates.

May University of Michigan consumer sentiment beat expectations but its 1-year and 5-year inflation expectation components fell from April's print.

The dollar rallied as investors lowered expectations for Fed rate cuts and increased the probability a hike will come in June Click here

The dollar's yield advantage over the euro increased.
U.S.-German 2-year yield spreads US2DE2=RR traded at their widest since March 21.

The upbeat U.S. data and yield spread influence is likely to keep EUR/USD bulls on defense.

Should a U.S. debt ceiling deal be reached U.S. rates may increase further, keeping bearish pressure on EUR/USD.

Technicals highlight downside risks.
A long upper wick has formed on Friday's candle, monthly RSI is falling and EUR/USD held below the 10-DMA and daily cloud.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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