July 8 (Reuters) –EUR/USD turned positive and set a three-week high after falling below the 200-day moving average on Monday as investors weigh the possibility the Federal Reserve may cut rates more aggressively in 2025, plus technical influences.
Recent U.S. data indicated employment is softening and disinflation may be back on track.
Short-term rates markets still price in two cuts for 2024 but have increased bets on the Fed cutting more than previously expected in 2025.
March 2026 fed funds futures FFH26 prices have been rallying since late April, and struck a three-month high on expectations for the Fed to become much less restrictive.
The implied yield for the 30-day fed funds futures curve has shifted markedly lower for the January 2025-July 2026 period from one month ago to reinforce expectations the Fed will cut more aggressively than its projections indicate.
EUR/USD technicals also highlight upside risks for the pair. Monthly and daily RSIs are rising but are not overbought, which implies upward momentum remains in place.
The 200-DMA helped to limit EUR/USD downside and the pair continues to hold above the daily cloud.
Fed Chair Powell’s testimony to the U.S. Senate, plus June CPI, PPI and weekly jobless claims data risks loom.
If data indicates disinflation persists and claims indicate weaker jobs, EUR/USD longs may target the 1.1000 area.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
