COMMENT-US recap: EUR/USD rises near key hurdles after PPI head fake

The dollar index fell 0.18% on Tuesday, surrendering a fleeting rebound on big U.S. PPI increases that were ultimately offset by large downward revisions.

That put the onus on Wednesday's CPI and retail sales reports to revive U.S. economic exceptionalism, Fed dominance and stronger dollar narratives.

Chair Jerome Powell reiterated his views that the U.S. economy is strong, labor is cooling toward pre-pandemic warmth and it could be a while before inflation reaches the Fed's target and interest rate cuts begin, but more rate hikes are unlikely.

EUR/USD rose 0.3%, with earlier gains aided by an improving German ZEW. The 1.08255 high came after a brief pullback on the PPI news attracted buyers as bund-Treasury yields spreads rallied. The high is right by the 100-day moving average and daily cloud base.

If Wednesday's U.S. data allow those yields spreads to rise further, bulls will be looking for a breakout above the cloud top and 61.8% Fibo of the March-April drop at 1.0835-7 toward the 76.4% Fibo by April's 1.0885 high.

USD/JPY rose 0.15%, with the yen persistently the weakest major currency due to the vast gap between BoJ rates, only seen rising to 0.31% by year-end. JGB yields have been steadily rising this year, but from such low starting points that tightening of yields spreads hasn't yet been sufficient to support the yen.

Tuesday's dollar rise versus the yen to 156.80 was trimmed after the net negative Treasury yields response to the PPI report left Treasury-JGB yield spreads at their lowest in over a month.

Fairly hawkish CPI and retail sales may be the ingredients needed to clear the final Fibos of the 160.245-151.86 intervention-suspected plunge at 157.04 and 158.27.

Sterling rose 0.25%, with its 1.25925 high capped by the 50-DMA, 50% retracement of the March-April slide and upper Bolli. UK labour market data did little to change BoE rate cut pricing, with August and November cuts seen quite likely. That as Bank of England chief economist Huw Pill said the central bank might be able to consider cutting interest rates over the summer.

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