Inflation Woes – Easter Edition: PCE Expected to Drop

EUR/USD – Dollar Bulls Challenge Support

As expected, the Fed kept the interest rate locked in place at 5.50% last week, but Fed Chair Powell’s relaxed attitude bolstered hopes of a June cut. At the time of writing, The CME FedWatch tool shows there is a 67% probability that the U.S. interest rate will be trimmed to 5.25% at FOMC’s June meeting.

Although the week ahead will be shortened by the Easter Holiday, there are still a few key economic releases, which can greatly shift the market. The main event will be the Core Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred measurement of inflation. An unexpected rise would diminish the chances of a rate cut in June.

Economic Calendar Highlights

The first notable event of the week will be the CB Consumer Confidence survey, which is scheduled for Tuesday at 2:00 pm GMT. When consumers are confident in the economic conditions, they tend to spend more, and consumer spending accounts for the majority of the overall economic activity, hence the importance of this survey.

FOMC Member Waller will speak on Wednesday at 10:00 pm GMT at the Economic Club of New York. Audience questions are expected, which could heighten the impact of the event.

Thursday at 12:30 pm GMT we take a look at the Final version of the U.S. GDP and later in the day, at 2:00 pm GMT, the UoM Consumer Sentiment will be released.

Friday at 12:30 pm GMT it’s time for the main event: the U.S. PCE Price Index. The expected change is 0.3%, while the previous figure was 0.4%. The release can trigger strong volatility and can affect the US Dollar for the medium term, not only Friday’s trading session. Also Friday, at 3:30 pm GMT, Fed Chair Powell will speak at the Macroeconomics and Monetary Policy Conference in San Francisco.

Technical Outlook – EUR/USD

Currently, the pair is trading at 1.0820 after an influx of US Dollar bulls that managed to drive the price lower last week, from a high of 1.0940 to 1.0801. The pair descended below the 50-day Moving average and the RSI just dropped below its 50 level. Both could be considered bearish signals but we still have the support at 1.0775 in front of falling prices.

This support will be the next test for the US Dollar bulls and while it looks like the pair is on a downward path, keep in mind that the PCE release may turn the dollar on a dime and send the pair higher. Of course, it could also accelerate the current bearish impulse. Caution is advised, especially because the Easter Holiday will affect volatility.