US recap: EUR/USD rally stalls on cloudy Fed view
May 7 (Reuters) -The dollar index rose 0.25% on Tuesday, as its fall following Friday's dovish U.S. jobs and ISM reports faded, while the yen remained the weakest major currency in the absence of intervention or any reduction in BoJ QE, despite growing aversion to further yen weakness from the Japanese government.
EUR/USD fell 0.1%, reversing earlier gains that came up shy of Monday's highs, which were below Friday's post-payrolls peak of 1.08125 peak. This week's highs are near the 50% Fibo of the March-April slide at 1.0791, and just below the 200-day moving average and the downtrend line from March.
Data from the euro zone has shown some improvement recently, but remains hit-or-miss and the probability of an ECB rate cut next month remains priced high by 86%, with roughly three cuts priced in by year-end.
In contrast, a first Fed cut isn't favored until September, with 45bp of easing priced by year-end.
Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday maintained his recent hawkish, high-for-longer rates bias, but there was little reaction from Treasury yields, with 2-year and 10-year yields flat and down 4bp.
Key for the dollar and Fed policy expectations are the May 15 CPI and retail sales reports, in the wake of Friday's disappointing jobs and ISM data.
USD/JPY rose 0.5%, probing past the 21-DMA at 154.63. But to clear a cluster of resistance in the 155.00-50 range, next week's U.S. data might have to contrast with last week's dovish misses.
Even though Treasury-JGB yields spreads have fallen to levels associated with USD/JPY's pre-152 April breakout, spreads remain wide enough to attract carry traders, regardless of suspected MoF yen interventions.
Sterling fell 0.4%, dipping back below Monday and Friday's lows amid falling Gilts-Treasury yields spreads. That after Friday's post-dovish U.S. data highs were faded ahead of the 100-DMA.
With little major U.S. data before the CPI and retail sales reports, the focus for sterling is on Thursday's BoE meeting and any hints a first rate cut could come in June rather than August, as currently priced in.
Aussie fell 0.48% following Tuesday's RBA meeting and bigger dip than forecast in Q1 retail sales that triggered a 15bp dive in 10-year Australian bond yields.
April and May aussie highs have been capped at 0.6644-50, roughly the reciprocal of which is 1.5.
USD/CAD rose 0.48% despite a much stronger-than-forecast Ivey PMI for March.
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Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.
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