BUZZ-COMMENT-EUR/USD bulls may lose the fight against data

Feb 12 (Reuters) - EUR/USD traded slightly higher Wednesday as bulls fought data indicating U.S. prices increased faster than expected in January, but investors looking for a rally may end up on the losing side of the battle.

January U.S. CPI came in above estimates across the board, which drove yields US10YT=RR higher as investors priced-in expectations for a higher terminal Fed rate SRAM26

German-U.S. spreads US2DE2=RR widened but only slightly, which may have helped to provide some support to EUR/USD.

EUR/USD bulls may be leaning on seasonal adjustments to CPI and hopes for an end to the war in Ukraine but those influences may be trumped by the U.S. prices increasing at a much quicker rate.

U.S. 2-year USBEI2Y=RR and 5-year USBEI5Y=RR breakevens for inflation rallied sharply after the CPI report. The 2-year breakeven rallied above 3.2% and the 5-year traded up to 2.625%.

Breakevens had rallied significantly heading into January CPI and those rallies were validated with the data's release.

The post-CPI rally suggests investors expect the inflation rate to increase and remain well above the Fed's 2.0% target.

Should break evens rally further and U.S. pricing data continue to surprise to the topside the dollar could rally, which could drive EUR/USD towards parity or below.

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