BUZZ-COMMENT-EUR/USD's resilience ahead of key risks should comfort bulls

Jan 22 (Reuters) - EUR/USD traded near flat after striking a 3-week high early Wednesday but investors appear comfortable with the pair's recent buoyancy despite looming risks from the ECB and U.S. inflation reports.

Comments Wednesday from ECB President Lagarde and other ECB policymakers solidified investors' expectations for a rate cut next week and their expectations for a total of four cuts in 2025.

Despite the easier policy rhetoric investors' expectations for the ECB's terminal rate FEIZ5 remained near 2.0% which it has been trading near since mid September.

The lower probability for deeper ECB cuts has helped reduce the dollar's yield advantage over the euro and helped to underpin EUR/USD as yield spreads US2DE2=RR and Fed SRAM26, ECBFEIZ5 terminal rate spreads have trended tighter.

Investors will now focus on inflation elements of upcoming U.S. economic reports -- specifically Friday's S&P Global's PMIs and University of Michigan consumer sentiment data -- to see if EUR/USD can extend its rally off the Jan. 13 low.

If the reports were to show a slowing of prices paid and a reduction of the consumer inflation outlook, investors might start discounting deeper cuts from the Fed, putting U.S. rates under pressure and dragging the dollar down.

Under such a scenario, a EUR/USD short squeeze could develop, potentially leading to a rally above 1.0600.

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(Christopher Romano is a Reuters market analyst. The views expressed are his own)

((christopher.romano@thomsonreuters.com;))