Inflation Watch: Preparing for PCE Data Release

Exploring the technical dynamics as EUR/USD tests key support.

Last week’s price action was sluggish, to say the least, with EUR/USD opening at 1.0635 and closing the week only 15 pips higher, at 1.0650. The high was 1.0690, so the entire week was slow, mostly due to the economic scene being lacklustre.

The Fed will go into silent mode until the next FOMC Meeting and rate announcement that are due next week. Currently, according to the CME FedWatch tool, there’s a 98.1% chance that the interest rate will remain unchanged at the June meeting. Safe to say that barring any market-altering surprises, the rate will stay the same.

European Central Bank (ECB) President Lagarde iterated Friday that the ECB will be monitoring the forex market because forex moves may affect inflation. However, the Governing Council is not committing to a specific rate route, according to Lagarde.

Economic Calendar Highlights

Tuesday is filled with a cluster of PMI releases, starting with the French and German Manufacturing and Services PMIs early in the morning at 7:15 am GMT. The same indicators for the UK economy are set for release at 8:30 am GMT, followed by the U.S. Manufacturing and Services PMIs at 1:45 pm GMT.

Thursday at 12:30 pm GMT we will take a look at the U.S. Advance GDP, which is expected to slow down to 2.5% compared to the previous 3.4%.

The most important release of the week is scheduled for Friday at 12:30 pm GMT: the U.S. Core PCE Price Index. This is rumoured to be the Fed’s preferred inflation gauge but the CPI is usually released about 10 days before the PCE and that’s why it tends to garner the most attention. The expected change for Friday’s release is 0.3%, the same as the previous.

Technical Outlook – EUR/USD

As mentioned, EUR/USD had a lazy week, without major developments. This is likely to change, considering that we have a much more action-packed week ahead of us. The pair is currently trading at 1.0665 and it looks like it is bouncing at 1.0635 support which was tested several times.

The RSI touched its 30 level, which signifies oversold, although it did not go below it. However, this touch is important because the last time it happened was in October 2023. If the bounce develops into a rally, the pair’s next medium-term target will likely become the 50-day Moving Average. A break below the current support (1.0635) will make 1.0500 the next important target.