Fed, Core PCE Loom as Dollar Rally Gains Steam

EUR/USD below key resistance – bearish momentum keeps the focus on 1.1325 support.

The dollar rallied last week, pushed higher by safe-haven demand as the US-Iran conflict escalated and President Trump considered expanding the military action. The ECB maintained the interest rate unchanged, as it was widely expected. However, growing inflationary pressure increases the likelihood of a rate hike in September.

The Middle East conflict is back in the spotlight after the Iran-backed Houthis launched attacks on two Saudi Arabian oil tankers in the Red Sea on Thursday. The ceasefire between the US and Iran crumbled about two weeks ago, and the two sides engaged in constant violence ever since. The new attacks by the Houthi group show that more oil routes are jeopardized and that the conflict is spreading to more regions.

Economic Calendar Highlights

The week will be dominated by the US interest rate decision and inflation data. The first two days are light in terms of economic releases, but the action will pick up on Wednesday with the interest rate announcement and press conference. The FOMC rate announcement is set for 6:00 pm GMT, but no change is expected. Currently, the odds of a 25-bps rate hike sit at 34%, according to the CME FedWatch tool, which means that it would be a massive surprise if the rate actually changes.

Federal Reserve Chair Warsh will hold a press conference half an hour later, at 6:30 pm GMT. However, during his previous conference (which was also his first as Fed Chair), he was very brief and did not reveal major clues about the rate path. We will see if this press conference ignites market volatility or if the Chair chooses to talk a bit more to the journalists.

The Core PCE Price Index will be released on Thursday at 12:30 pm GMT, offering information about US inflation. This is the Fed’s preferred inflation gauge, and it directly affects rate odds; it also has a major impact on forex pairs that include the US Dollar.

Technical Outlook – EUR/USD

The pair dropped again below the level at 1.1400, and this time we may be dealing with a real breakout. The three moving averages indicate a downtrend, and the price sits below a long-term bearish trend line.

The Relative Strength Index (RSI) is moving south without being oversold and without showing bullish divergence, which supports the idea of a bearish breakout.

The first support is now located at 1.1325, which was the previous low, and if that line breaks, the pair might be headed towards 1.1200. To the upside, the first potential resistance is represented by 1.1400.