• Treasury yields have risen this week due to better-than-expected US data

• A recent auction in the US revealed lower demand for the country’s debt.

• Data from the Eurozone showed a bigger-than-expected increase in German inflation.

The EUR/USD forecast points South as the dollar trades near a two-week high amid a rally in Treasury yields. Meanwhile, the euro remains weaker as markets prepare for an ECB rate cut next week.

A rally in US yields spooked investors, leading to a scramble for the dollar’s safety. Treasury yields have risen this week due to better-than-expected US data, raising doubts about a Fed cut in September. At the same time, a recent auction in the US revealed lower demand for the country’s debt.

Investors are now looking forward to US GDP and unemployment figures. However, the focus is on the core PCE price index, which comes on Friday. This report will show whether inflation is easing or remains stubborn. Consequently, it will significantly impact the outlook for rate cuts in the US.

Elsewhere, data from the Eurozone showed a bigger-than-expected increase in German inflation by 2.8% in May. This was slightly bigger than the forecast of 2.7% and came after a rise of 2.4% in the previous month. However, economists had expected this spike. Therefore, it had little impact on expectations for an ECB rate cut next week.

A Reuters poll revealed that all economists expect the European Central Bank to implement its first cut in June. Moreover, economists expect another cut in September and December. This is a more dovish outlook as markets forecast only two cuts in 2024.

EUR/USD key events today

• US preliminary GDP q/q
• US unemployment claims
• US pending home sales m/m

EUR/USD technical forecast: New low confirms a bearish reversal

On the technical side, the EUR/USD price has broken below the 1.0800 critical support level after a sharp bearish move. This comes after the price broke out of its bullish channel. The initial breakout paused when bulls tried to take back control. However, bears overpowered them and broke below 30-SMA and 1.0800 to make a lower low.

This confirms the start of a downtrend with lower highs and lows. Furthermore, the RSI shows solid bearish momentum as it prepares to dip into the oversold region. Given the strong bearish bias, the price will likely fall to retest the 1.0725 support level.

https://www.forexcrunch.com/blog/2024/05/30/eur-usd-forecast-us-yields-rally-leads-dollar-to-2-week-top/