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May 31 - 11:55 AM

EUR/USD - COMMENT-With Diminished US Inflation Fears EUR/USD Longs Now Look To Payrolls

By Christopher Romano  —  May 31 - 10:30 AM

EUR/USD rallied above the 10- and 21-DMAs Friday then struck a three-session high after U.S. data indicated inflation may not be running hot and consumer spending is slowing.

April month-on-month core PCE came in at +0.2% versus +0.3% estimates while consumer spending was +0.3% in April from a downwardly revised +0.7% in March.

The data helped drive U.S. Treasury yields US2YT=RRUS10YT=RR downward as investors build in a greater possibility of the Fed initiating rate cuts later this year.

The dollar's yield advantage over the euro decreased as German-U.S.
spreads US2DE2=RR tightened to help buoy EUR/USD.

The data was not enough of a catalyst for EUR/USD to break resistance near 1.0900, however.
For that resistance to break and the rally to extend longs will need help from U.S. May payrolls data next Friday.

Should the data indicate a softening jobs market, the Fed may lean more dovish especially after the PCE report indicated only a modest rise in inflation.

A downbeat jobs report could lead investors to increase the probability for the Fed to cut in September, which the CME's FedWatch Tool indicated as a roughly 55% probability after PCE data. Click here

A sub-par jobs outcome would most likely push U.S. yields lower, dragging down the dollar and potentially lifting EUR/USD towards 1.1050/1.1100.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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