EUR/USD firm on soft US and better euro zone data, yen weak

The dollar index was little changed on Monday as broader weakness following Friday’s far-below forecast US jobs and ISM services reports was offset by a slide in yen after last week’s USD/JPY 160.245-151.86 plunge attracted dip buyers near 2023 and 2022’s peaks.

Monday’s comments from Federal Reserve Bank of New York President John Williams and Richmond Fed President Thomas Barkin had little impact on markets.

EUR/USD rose 0.1%, aided slightly by the final eurozone PMI composite business activity index growing at its fastest in nearly a year led by the service sector and despite weakness in the manufacturing sector. Also supportive of the euro was less negative investor sentiment.

Friday’s EUR/USD high at 1.08125 on EBS ran into the downtrend line from March’s swing highs, just above the 200-day moving average. The 100-DMA and twisting cloud by 1.0840 and the downtrend line from December at 1.0848 on Tuesday are nearby hurdles as well.

As with most dollar pairs, a better read on the likelihood of Fed rate cuts will come from US CPI and retail sales releases on May 15. If they are dovish enough to suggest the view that the top in Treasury yields was made last month and the Fed can consider more than the roughly two 2024 rate cuts currently priced in, EUR/USD could rise to key resistance at 1.1000.

USD/JPY rose 0.6%, continuing its rebound from Friday’s 151.86 low by its 2023/22 peaks, the April breakout above which reached 160.245 by last Monday before suspected interventions erased the entire breakout.

Friday’s disappointing US data and a further pullback in Treasury yields were not enough to keep active traders from buying the dip back to the big breakout point. But gains have been guarded so far by a 154.01 high because of the potential risk of intervention and that the May 15 US data might also leaning dovish.

Sterling rose 0.16%, but like EUR/USD, it was unable to reach Friday’s post-payroll miss peak before trimming gains. The BoE is seen holding steady at Thursday’s meeting, with a first rate cut not being priced in until August, and 47bp of cuts by year-end. The Fed isn’t favored to cut rates until September, with 44bp by year-end.

Aussie rose 0.28% ahead of Tuesday’s RBA meeting, which is seen steady, but with a hawkish bias.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)