EUR/USD is trading lower on Tuesday and near the 55-DMA with help from wider German-U.S.
2-year yield spreads US2DE2=RR, but dips may still be an opportunity for bulls if expectations on Fed and ECB policy paths persist.
Investors digested rounds of dismal euro zone data which suggest the economic bloc is in, or near, a recession, while also building in expectations for ECB rate cuts to begin late Q1 FEIH4 or early Q2 FEIM4 2024.
Until recently, U.S. economic data had out shined EZ data, but it now shows signs of cracking due to below estimate jobs reports and pricing data indicating disinflation is entrenched.
Rates have softened on the data as investors pull forward expectations for the Fed's first rate cut SRAM24SRAH24.
yield spread tightening US2DE2=RR reinforces investors views and erodes the dollar's yield advantage over the euro.
The CME's FedWatch Tool indicates the first cut will occur at the May 1 meeting. Click here
While the ECB is expected to cut, the impact of Fed rate cuts are likely to have a greater impact on investor sentiment.
More U.S. data indicating softer growth could drive the Fed to cut sooner than expected.
EUR/USD could then rally significantly should data softness intensify.
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