EUR/USD turned higher Friday after U.S. December PPI reinforced the entrenched disinflation picture with an unexpected fall, increasing the prospect of testing the pair’s 2023’s yearly high if certain impediments are removed.
The March 2024 SOFR futures contract SRAH24 price extended its recent rally after the data, striking a fresh high for the month of January.
Gains were driven by investors pricing in a higher probability for a Fed rate cut at the March meeting.
CME’s Fed Watch Tool indicates an 85% probability of a March cut.
The rise left the March SOFR contract threatening to break December’s monthly high and the 23.6% Fibo of the 96.64-94.55 drop.
A break of those impediments would reinforce the downward trend in the U.S. rate complex and decrease the dollar’s yield advantage over the euro, which has been eroding since early December.
Further reduction of that yield advantage may rally EUR/USD above structural resistance in the 1.1000/20 zone.
A combination of the dollar’s diminishing yield advantage and a break of resistance could be a catalyst that drives a test of 2023’s yearly high.
For more click on FXBUZ
