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Aug 11 - 04:55 PM

EUR/USD - COMMENT-US Recap: Inflation Whipsaw Keeps EUR/USD Slightly In The Plus Column

By Paul Spirgel  —  Aug 11 - 02:50 PM

The dollar whipsawed on Thursday, sliding broadly after a dip in monthly PPI appeared to support the view that U.S. inflation had peaked and would allow the Fed to tighten less aggressively, but early losses unwound into the close as oil rallied near 3%.

Traders are keeping a close eye on oil, which has dropped near $30 since the June peak and contributed to the lower inflation.

The late oil rally, and stay-the-course comments by several Fed officials nL1N2ZM0ZP arguing that it was too early to declare victory in the fight against inflation stirred recent dollar shorts to cover positions as they await more data.

interest rates have backed up since the initial response to Wednesday’s soft CPI data, with Eurodollar futures prices weakening and Treasury yields moving higher.

Futures now discount a 40% chance of a 75bp hike in September and a total of 119bp in Fed hikes by the December FOMC meeting, up from 112 after CPI.

EUR/USD held onto a slight gain into the New York close at 1.0320, well off its early NorAm 1.0364 high.
A daily doji candle has formed, hinting a consolidation phase may have begun.

USD/JPY saw considerable whipsaw post-PPI, moving below Wednesday’s 132.03 low to 131.74.
The dovish Fed narrative was short-lived and USD/JPY popped higher into the NorAm close, trading about 0.1% firmer at 133.01.

Resistance for USD/JPY comes at the 10-DMA by 133.58.
Focus remains on Fed rate expectations with the BOJ seen static into year-end.

GBP/USD was capped at 1.2250, with bulls reluctant to test recent highs at 1.2277 and 1.2292.

Inflation and growth concerns could hinder cable.

Futures indicate the BoE will hike a further 115 basis points through December, with the Fed likely to deliver 119bp by year-end.

Risk markets were off early NorAm highs.
BTC was up +1.4% at $24.3k, off its $24.9k high.
Gold reversed early gains on the firmer U.S. rate outlook.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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