EUR/USD rallied Wednesday and is on the verge of making much bigger gains with help from U.S. CPI suggesting disinflation may be accelerating which could lead the Fed to pause hikes or cut rates later in 2023.
March core CPI met estimates with the year-on-year rising to 5.6% from 5.5% in February but headline results were below forecast.
Particularly interesting to investors were the housing, shelter, rent and owners' equivalent rent components all lower than in March, which helped drive U.S. rates SRAU3 and the dollar broadly lower.
rate moves resulted in additional erosion of the dollar's yield advantage over the euro.
spreads US2DE2=RR neared the tights set April 4, a break which could help extend EUR/USD's rally.
Short-term rates markets in the U.S. rallied in price SRAM25, indicating investors expect the Fed to cut rates more aggressively than the ECB will, which will further erode the dollar's yield advantage.
Technicals highlight upside risks, with daily and monthly RSIs rising and not yet overbought.
The 10-day moving average lends support and consolidation of gains off the 2022 yearly low is nearing completion.
Resistance near 1.1500 and 1.1700 would become targets if 1.1030/80 breaks.
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