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Aug 12 - 11:55 AM

EUR/USD - COMMENT-Data, Diverging Fed-ECB Paths, To Keep EUR/USD Downside Risks Elevated

By Christopher Romano  —  Aug 12 - 10:35 AM

EUR/USD is giving back much of Wednesday's post-US CPI gains to keep key 1.1695/1.1705 support in focus.
This as influences from data and diverging expectations for the Fed and ECB, should keep downside risks intact.

US weekly and continuing claims dropped nAPN07HFBW from the prior release to indicate that US job recovery remains on track.

A big upside surprise to July US PPI nAQN04IQAD reinforced views that inflation is running hot, and also stoked concerns consumer prices will continue to increase at a rapid pace.

Thursday's data drove US interest rates higher.
The 10-year yield US10YT=RR lifted above 1.375%, while December 2022 eurodollar prices EDZ2 erased overnight gains and turned lower on the session.

The rate moves highlight investors' diverging expectations for Fed and ECB rate moves.
While US rates are trending higher, euro zone rates are holding near recent lows.
December 2022 Euribor FEIZ2 prices remain buoyed near the August high.

Price action in US and euro zone rate futures suggests investors expect the Fed to act more aggressively, in terms of rate hikes, than the ECB.

The data and rate markets’ influences should keep EUR/USD from rallying, and increase the probability for breaks of 1.1695/1.1705 support where the March low and 38.2% Fibo of 1.0636-1.2349 reside.

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Source:
Refinitiv IFR Research/Market Commentary

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