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Jun 07 - 01:55 PM

EUR/USD - COMMENT-Inflation Risks Could Keep EUR/USD On Familiar Turf

By Christopher Romano  —  Jun 07 - 10:42 AM

EUR/USD added slightly to recent gains on Monday, but investors seemed reluctant to be aggressive as upcoming inflation risks from the U.S. and ECB threaten to hem it in for a while.

Thursday's U.S. CPI and ECB meeting, which will include economic projections, will shape near-term inflation views.

May CPI is estimated USCPI=ECI to have slowed its rise after April's nearly 12-year high nL1N2MZ15U, but an above-forecast reading could reinforce concerns that inflation might not be transitory as the Fed expects, which could result in less accommodative policy, supporting the dollar.

The ECB projections will attract similar scrutiny since May euro zone inflation was just above the bank's target of below but close to 2% nL2N2NJ0OP while other key economic data nZRN00257F indicate growth is accelerating.
A material increase in ECB inflation outlooks would lead investors to position for less accommodative policies, buoying EUR/USD.

A combination of above-forecast U.S. inflation and ECB projections could be offsetting.
Options suggest big EUR/USD moves are not expected, with risk reversals EUR1MRR=FN showing vol premiums nearly neutral.

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