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Sep 10 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Faces Risks From US Inflation, Fed Rhetoric

By Christopher Romano  —  Sep 10 - 10:13 AM

EUR/USD rallied to a three-session high Friday, but those gains have since evaporated.
And with a number of factors stacked against it, including U.S. inflation worries, Fed rhetoric and technicals, lower levels beckon.

Headline and core August producer price index results, both month-over-month, and year-over-year, had upside surprises nL1N2QB2I4.
The above estimates PPI data runs the risk that high inflation could be in place longer than is currently expected.

Fed inflation rhetoric is another factor that could keep EUR/USD bulls corralled.
Cleveland Federal Reserve President Loretta Mester is forecasting inflation to remain high in 2021 before then coming down.
However, Mester did say that there are upside risks to her forecast. nL1N2QC0XB.

Should inflation continue to run hot, investors may expect the Fed to taper sooner rather than later.
In fact, Investor inflation expectations are rising.
After a sharp drop from May to June, U.S. 5-year/5-year inflation linked swaps USIL5YF5Y=R now trade at three-month highs.

Technicals also highlight EUR/USD downside risks.
The pair is struggling to hold above the daily cloud base and 10-day moving average as it consolidates the drop from the September 3 high.
A September gravestone doji forming on the candle charts suggests EUR/USD bears have the advantage.

The 1.1780/1.1800 area is key short-term support.
A break of it could drive a test of the August monthly low.
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Source:
Refinitiv IFR Research/Market Commentary

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