EUR/USD Shows Signs of Recovery as Focus Turns to PCE Price INDX
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EUR/USD has started to recover on Friday, bouncing back from a four-day decline that pushed the pair to its lowest level in over two months near 1.0700. However, the near-term technical outlook still lacks a clear bullish signal in the short term, and the next move will likely be influenced by the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index data.
Positive macroeconomic data releases from the US reignited expectations of another interest rate hike by the Federal Reserve (Fed) in June, providing a boost to the US Dollar (USD) on Thursday. The US Bureau of Economic Analysis revised the annualized Gross Domestic Product (GDP) growth for the first quarter to 1.3% from the initial estimate of 1.15%, and the weekly Initial Jobless Claims came in at 229,000, beating the market expectation of 245,000.
The annual Core PCE Price Index, which is the Fed's preferred inflation gauge, is projected to rise by 4.6% in April, matching the reading for March. On a monthly basis, core PCE inflation is expected to remain steady at 0.3%. If the monthly figure meets or exceeds 0.5%, it could reinforce expectations of a Fed rate hike in June and bolster the US Dollar's strength heading into the weekend. Conversely, a softer-than-expected reading would likely limit the USD's gains and potentially allow EUR/USD to extend its rebound.
According to the CME Group FedWatch Tool, the probability of the Fed keeping its policy rate unchanged in June has fallen below 60% from nearly 80% earlier this week. Market positioning indicates that EUR/USD faces a two-way risk depending on the outcome of the PCE inflation data. Our idea revolves around a potential pullback around the 38.2% and 50% Fibonacci area, supported by divergence on the RSI indicator and confluence with the upper side of the dynamic channel, which could serve as additional resistance.
Positive macroeconomic data releases from the US reignited expectations of another interest rate hike by the Federal Reserve (Fed) in June, providing a boost to the US Dollar (USD) on Thursday. The US Bureau of Economic Analysis revised the annualized Gross Domestic Product (GDP) growth for the first quarter to 1.3% from the initial estimate of 1.15%, and the weekly Initial Jobless Claims came in at 229,000, beating the market expectation of 245,000.
The annual Core PCE Price Index, which is the Fed's preferred inflation gauge, is projected to rise by 4.6% in April, matching the reading for March. On a monthly basis, core PCE inflation is expected to remain steady at 0.3%. If the monthly figure meets or exceeds 0.5%, it could reinforce expectations of a Fed rate hike in June and bolster the US Dollar's strength heading into the weekend. Conversely, a softer-than-expected reading would likely limit the USD's gains and potentially allow EUR/USD to extend its rebound.
According to the CME Group FedWatch Tool, the probability of the Fed keeping its policy rate unchanged in June has fallen below 60% from nearly 80% earlier this week. Market positioning indicates that EUR/USD faces a two-way risk depending on the outcome of the PCE inflation data. Our idea revolves around a potential pullback around the 38.2% and 50% Fibonacci area, supported by divergence on the RSI indicator and confluence with the upper side of the dynamic channel, which could serve as additional resistance.
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