EUR/USD: Focus on Draghi’s speech and US CPI

EUR/USD is consolidating above 1.13 ahead of Draghi’s speech and key US data releases. 

The shared currency confirmed a technical breakout with a rise to 1.1348 on Friday. So far, however, a bullish follow-through has remained elusive with the upside capped near 1.1340. 

The lack of strong follow-through could be associated with the recovery in the US-German (DE) yield spreads. For instance, the 10-year yield differential widened to 239 basis points on Tuesday – up 13 basis points from the low of 226 basis points registered on June 3. 

The yield differential will likely narrow in the EUR-positive manner, helping the EUR/USD pair capitalize on Friday’s bullish breakout if the European Central Bank (ECB) President Draghi sounds less dovish during his speech at 08:15 GMT today. The central bank said last week that it would delay its first post-crisis rate hike until middle of next year and Draghi offered to pay banks if they pass on the cash borrowed from the ECB to households and firms. 

The gains in the EUR/USD, however, will likely be short-lived, if the US reports a better-than-expected consumer price inflation for May at 12:30 GMT today. 

It is worth noting that the Fed funds futures are currently pricing in three rate cuts for 2019. Many including the likes of Goldman Sachs believe the markets have overpriced Fed rate cuts and the central bank will stand pat for the rest of the year.

That argument would gain credence with an above-forecast US inflation number, forcing the markets to scale back the dovish Fed expectations and possibly leading to a broad-based USD rally. 

Pivot points