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Jun 06 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Up After Expected ECB Cut Pre Payrolls Friday

By Randolph Donney  —  Jun 06 - 02:00 PM

The dollar index slipped ahead of Friday's U.S. employment report and after the ECB cut rates as expected and signaled further easing will depend on data.

EUR/USD rose 0.2% as bund-Treasury yield spreads advanced after the so-called hawkish ECB rate cut and modestly above forecast U.S. jobless claims, and is by resistance near 1.0900.

ECB President Christine Lagarde's most persuasive reason for cutting rates, despite the central bank raising projections for headline and core inflation this year and next, was that real interest rates had risen since last September, making policy even more restrictive.

Thursday's rise in bund yields and euro advance was likely due to unwinding of some trades betting on or hedging against the ECB's forward guidance not being data-dependent enough and the more basic macro view that easing should support the region's growth.

Weaker-than-forecast German industrial orders and euro zone retail sales for April highlighted the region's recovery struggles, but the slightly more expansionary May HCOB results suggest improvement.

The macro focus now shifts to Friday's payrolls report.
Private payrolls are forecast up 170k versus ADP's weaker-than-expected drop to 152k from April's 192k.
Overall NFPs are forecast at 185k, up from April's 175k.

The jobless rate is seen steady at a still historically low 3.9%, while average hourly earnings are forecast up 0.3% month-on-month from 0.2% last, and up 3.9% again from a year ago.
This week's JOLTS report showed labor market cooling.

Friday's jobs data could determine whether the recent slide in Treasury yields to key supports by May's lows reverses or accelerates, supporting or hurting the dollar.

USD/JPY fell 0.25% after running into resistance near Wednesday and Tuesday's 156.48 highs.

Thursday's early slide to 155.35 was triggered by BoJ Governor Kazuo Ueda reaffirming the view that the central bank should reduce its enormous JGB purchases.
Though the BoJ are seen keeping rates steady at next week's meeting, 10bp rate hikes in September and December are being discounted.

Treasury-JGB yield spreads rose on Thursday for the first time this week, though they remain well below April and May's highs, which were well below 2023's peak from shortly after the Fed's final rate hike in July.

A solid payrolls report may be needed to rise toward the late and early May highs at 157.71/99 associated with the BoJ's last round of intervention.

Sterling was flat, having recovered from the day's 1.2763 low that followed a BoE survey suggesting a sharp fall in UK firms' wage growth and EUR/GBP's rise after the ECB events.
UK construction and composite PMI were mixed.

Sterling remains fairly close to March's brief peak to 1.28935, but is still working off the bearish divergence between June's trend high and overbought RSIs and the potential for follow-on BoE rate cuts.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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