BUZZ-COMMENT-EUR/USD longs hope break turns out to be false

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- EUR/USD fell to a 1-month low Thursday and broke support near 1.0800 and the daily cloud base but then rallied sharply which may indicate a false break ahead of key U.S. inflation data Friday.

The pair's fall was aided by comments on Wednesday from Fed Governor Christopher Waller, who said there is no rush to cut the policy rate.

The comments helped increase the dollar's yield advantage over the euro as German-U.S. 2-yer yield spreads US2DE2=RR, which EUR/USD is correlated with, widened.

Dollar selling emerged however as U.S. yields US2YT=RR gave back much of their earlier gains.

EUR/USD got an added boost from final Q4 core PCE coming in at 2.0% versus the prior +2.1%, while the March University of Michigan final reading showed consumers' 1-year and 5-year inflation outlooks, a key pricing gauge for the Fed, dropped from the initial reading.

All eyes are now focused on U.S. February PCE.

A below estimate result could reinforce investors' expectations for three Fed rate cuts in 2024, which may weigh down yields and the dollar.

Yield spreads could then tighten, diminishing the dollar's yield advantage.

In that case, EUR/USD would then be expected to rally and confirm that today's break to fresh lows was false.

For more click on FXBUZ

(Christopher Romano is a Reuters market analyst. The views expressed are his own)


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