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May 21 - 11:55 AM

EUR/USD - COMMENT-Fed Rate Cut Expectations Remain The Bigger Factor For EUR/USD

By Christopher Romano  —  May 21 - 10:10 AM

EUR/USD traded near flat Tuesday as investors shrugged off euro zone pricing data that could push the ECB in a more dovish direction, indicating that expectations of Fed rate cuts could be playing a larger role in the market.

German April producer prices came in at +0.2% versus +0.3% estimates for month-on-month and -3.3% versus estimates of -3.1% for year-on-year.

The report weighed down German yields DE2YT=RR as the data reinforced bets the ECB will cut in June.

The dollar's yield advantage over the euro increased due to German-U.S.
spreads US2DE2=RR widening slightly.

EUR/USD's buoyancy may be attributed to investors still expecting the Fed to cut rates despite rhetoric warning that caution may be warranted before deciding on the first reduction.

U.S.
short-term rates markets still have nearly 50bps of cuts priced in for 2024 with easing expected to continue through early 2026.

EUR/USD remained within the May 16-17 daily ranges however, which is an indication that the pair's consolidation of gains off the May 9 daily low is intact.
Consolidation is a bullish tech signal and the phase could resolve with a resumption of the rally off April's low.

Unless U.S. data clearly indicates rising inflation and the Fed signals they're more concerned price pressures are heating up, dollar bears may emerge and EUR/USD may rally.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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