EUR/USD rallied into positive territory Friday and may extend its gains as PCE data raised the possibility that moderating inflation could temper the Fed’s hawkish stance.
U.S.
Treasury yieldsUS2YT=TWEB gave back most earlier gains and SOFR futures SRAZ3 rallied on a downside surprise to headline May PCE and below estimate consumption. Downward revisions to April’s PCE and consumption also weighed on rates.
The dollar’s yield advantage over the euro eroded after the data as U.S.-German two-year yield spreads US2DE2=RR tightened.
EUR/USD turning positive and rallying above the 55-day moving average generated bullish technical signals.
Daily RSI diverged on the 11-session low and a daily bull hammer candle formed.
Investors will now focus on the U.S. June employment report on July 7.
A weak result will put further pressure on the Fed to take a less hawkish stance.
Data from the Kansas City Fed indicate labor market conditions are trending downward. Click here
U.S.
yields and the dollar should fall sharply and EUR/USD may test the 1.1100 area if employment data indicate the jobs market is softening.
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