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May 15 - 07:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD's April Dive Erased By Cooler US Sales, CPI Data

By Randolph Donney  —  May 15 - 02:15 PM

The dollar index fell 0.67%, led by USD/JPY's 1% loss, after much weaker-than-forecast U.S. retail sales and a sigh of relief that the CPI monthly increase backed off a shade more than expected, sending Treasury yields sharply lower, though not below crucial supports.

A rebound in Treasury yields -- and the dollar -- off key yield support from the April 10 low before that day's hot CPI roiled markets, was rebuffed by an unexpected dive in the May NAHB index.

Dollar selling then resumed, driving EUR/USD further beyond key 61.8% Fibo and daily cloud top resistance at 1.0835-7 and above the April 10s pre-hot U.S. CPI 1.08665 high and almost to April's 1.0885 peak the day before.
That as Fed rate cut probabilities increased.

The U.S. macro focus will now shift back to how quickly the labor market is cooling.
Thursday's initial jobless claims is forecast to fall back to 220k from last week's surprise rise to 231k, its highest since August.
This comes after well below forecast non-farm payrolls and a renewed downtrend in still high job openings, as well as dismal ISM data.

In a role reversal, the yen was the strongest major currency on Wednesday due to relatively steady JGB yields as 25bp of BoJ rate hikes priced in by year-end contrasted with tumbling yields elsewhere.

USD/JPY's slide has prices down by last Wednesday's 154.60 lows and comes after a failed attempt to retrace 61.8% of the 160.245-151.86 plunge on suspected interventions at 157.04.

Two- and 10-year Treasury-JGB yields spreads have bearishly fallen 37bp and 41.6bp from their April 30 peaks, adding to headwinds for spec longs still working off April's second-largest ever net long position.

Sterling rose 0.7%, getting well above the 50- and 100-day moving averages and almost to April's twin 1.2709 highs.
The rise was aided by better risk acceptance as Wednesday's U.S. data saw two Fed rate cuts by December fully priced, and not dissimilar to the 59bp of BoE rate cuts currently expected.

Aussie rose 0.97%, finally clearing repeated highs in the 0.6644-67 range in March, April and May, as the risk proxy also got a boost from higher commodity prices.

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday reiterated his high-for-longer rates view, as did Kansas City Federal Reserve Bank President Jeffrey Schmid and Federal Chair Jerome Powell on Tuesday.
As usual, more inflation, labor and demand data is eagerly awaited, though the U.S. calendar is pretty thin until late in the month.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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