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May 16 - 09:55 AM

MUFG: US CPI Print Provides Some Relief For USD Bears; We Stay Long EUR/USD

By eFXdata  —  May 16 - 08:30 AM

Synopsis:

MUFG maintains a positive outlook on EUR/USD, bolstered by recent U.S. inflation data which supports the possibility of Federal Reserve rate cuts later this year. The bank continues to advocate a long position in EUR/USD, anticipating further gains towards 1.1050.

Key Points:

  • US CPI and PPI Reports: April's CPI and PPI data align with expectations for a moderated increase in April's core PCE deflator, indicating a potential easing of inflation pressures. This development is seen as favorable for the Fed, which has been grappling with higher inflation rates.
  • Fed Rate Cut Expectations: The US rate market has adjusted its expectations, fully pricing in two Fed rate cuts by year-end, a shift that supports a weaker USD.
  • Technical Breakout: EUR/USD has recently surpassed the 200-day moving average at around 1.0790, reinforcing the bullish momentum and setting the stage for a potential test of year-to-date highs above the 1.1000-level.

Conclusion:

MUFG's strategy reflects a strong conviction in the EUR/USD's upward trajectory, driven by softening inflation dynamics in the US and the anticipated policy response from the Fed. 

Source:
MUFG Research/Market Commentary

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