Dollar Surges with Increase in Treasury Yields

• Short-dated Treasury yields increased sharply.

• There is unease surrounding Wednesday’s US inflation data.

• Speculators are holding the biggest bullish position in the euro in over two years.

Today’s EUR/USD forecast is bearish. The dollar extended gains on Wednesday because short-dated Treasury yields increased sharply. However, there was unease surrounding Wednesday’s US inflation data. 

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Economists predict a 5.5% year-on-year increase in core consumer prices for April. If the reading is higher than expected, it may be problematic for the Federal Reserve as the central bank recently signaled a potential halt to its hiking cycle.

Money markets expect the Fed to keep rates on hold at its meeting in June and predict at least two rate cuts by the end of the year.

After their meeting on Tuesday, President Biden and House of Representatives Speaker Kevin McCarthy have yet to agree on raising the $31.4 trillion US debt limit. Because of this there could be an unprecedented default in just a few weeks. 

However, they have agreed to further talks and instructed their aides to have daily discussions. The next meeting between Biden, McCarthy, and the three other top congressional leaders will be on Friday.

Elsewhere, the Commodity Futures Trading Commission’s weekly data shows that speculators hold the biggest bullish position in the euro in over two years. With a value of $23 billion, it has nearly tripled in six months. 

However, investors anticipate that the European Central Bank will have more room to increase interest rates than the Fed. This could lead to some reduction of these bullish bets.

EUR/USD key events today

All focus today will be on the US inflation report, and the outcome of this report will guide the Federal Reserve’s policy moves going forward.

EUR/USD technical forecast: Bears challenge critical support at 1.0949.

EUR/USD is on the verge of crossing below the 1.0949 support level. This comes after a strong bearish move that saw the price drop from the 1.1050 resistance level to 1.0949. The bearish bias is strong because the price trades below the 30-SMA with the RSI below 50.

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If bears break below 1.0949, the next target will be at the 1.0910 support level. However, there is a chance that the price will consolidate at this support level before either breaking below or pulling back to retest the SMA.

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