Dollar Bulls Stay in Control Ahead of PCE and Davos Risks

EUR/USD eyes key support as Fed cut expectations drift toward mid-year.

The US dollar finished last week on a high note, boosted by better than expected Jobless Claims and two manufacturing surveys. Overall, the U.S. economy is resilient and in no need of immediate rate cuts, also considering that the CPI report released last week did not provide any concerning data.

U.S. Retail Sales numbers came out above expectations, supporting the idea of a thriving economy, or at least one that does not need rate cuts. The Fed’s favourite inflation gauge, the PCE Index, will be released this week, and it could change the rate probabilities, but at the time of writing, the first rate cut is projected for June, according to CME’s FedWatch tool. The probability for a June cut sits at 44.5%, while for the January meeting, there’s a 95.6% probability that the rate will remain unchanged.

Economic Calendar Highlights

The World Economic Forum (WEF) annual meetings will begin in Davos on Monday. U.S. President Trump is scheduled to speak at the meetings on Wednesday at 1:30 pm GMT, and considering the Greenland situation, his speech is highly anticipated. Trump recently threatened new tariffs on states supporting Greenland, and transatlantic relationships are shaky. If his speech touches on these points, we will likely see some reaction on the charts.

The Core Personal Consumption Expenditure (PCE) Index will be released on Thursday at 1:30 pm GMT, delayed 34 days due to the U.S. government shutdown. There will be two simultaneous releases (October and November) because last month’s release was skipped due to the shutdown.

A series of PMIs will be released on Friday, starting with the German Manufacturing and Services PMIs early at 8:30 am GMT, and continuing with the same indicators for the British economy at 9:30 am GMT. The U.S. PMIs will be last, coming out at 2:45 pm GMT.

Technical Outlook – EUR/USD

The pair is still on a downward path, possibly headed towards the 1.1400 area in the medium-term. However, before it gets there, the price still has to clear the support zone created by the bullish trend line, around 1.1550.

The RSI is approaching oversold territory, which, combined with the trend line, will probably create some bullish movement. Resistance sits at 1.1700, but the euro bulls are not showing any signs of strength, so a move into that area is less likely at this time.

The WEF meetings in Davos, and especially Trump’s speech, will spark some volatility, which is also the case with any news regarding Greenland and the new tariff situation.