No Rate Cuts on the Horizon: Will PCE Data Shift the Course?

Technical Analysis: EUR/USD’s Trend Line and RSI Dynamics.

Last week, members of the Federal Reserve indicated a reluctance to reduce interest rates soon, especially with inflation exceeding their target. The minutes from their latest meeting revealed inflation concerns, suggesting that further actions might be necessary. They emphasized maintaining a “restrictive” policy until there’s clear evidence of inflation being headed towards the elusive 2% objective.

Meanwhile, the euro gained on Thursday, boosted by surveys suggesting a less severe recession in Germany than anticipated. The Purchasing Managers’ Index (PMI) for the services sector in the Eurozone climbed to 48.2 from 47.8, marginally higher than the forecasted 48.0. However, it is still below 50.0, which indicates a contraction in the industry.

This week the focus remains on inflation data, as both the U.S. and Germany will release their respective preferred inflation gauges.

Key Data for the Week Ahead

Monday at 2:00 pm GMT, ECB President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament. The event may trigger volatility in EUR pairs.

Tuesday at 3:00 pm GMT we take a look at financial confidence among U.S. consumers with the release of the CB Consumer Confidence survey. This is a leading indicator of consumer spending, which in turn represents the majority of overall economic activity.

The German Prelim CPI (monthly data) is scheduled for release Wednesday at noon (GMT) and is expected to decrease -0.1% from the previous 0.0%. At 1:30 pm GMT the same day, the U.S. Prelim Gross Domestic Product will be released, showing the change in the total value of services and goods created by the economy.

The indicator with potentially the biggest impact of the week is scheduled for release Thursday at 1:30 pm GMT: the Core PCE Price Index. The expected change is 0.2% from the previous 0.3%. If the actual number matches or exceeds expectations, it will be a clear sign that U.S. inflation is on a downward path.

The economic week ends Friday with the release of the U.S. Manufacturing PMI, scheduled at 3:00 pm GMT, followed an hour later by a public appearance by Fed Chair Jerome Powell.

Technical Outlook – EUR/USD

Just like last week, EUR/USD is facing a test represented by the bullish trend line. It is currently trading at 1.0945, which is almost the same price as last Monday at the same time. Broken bullish trend lines can turn into resistance, which is what we are seeing now, thus a break of this barrier would represent a victory for the bulls.

The RSI is still overbought and showing bearish divergence, which usually results in a move south. Even if the bulls manage to break the current resistance (trend line), a pullback will eventually come and 1.1000 is a very likely place for that to happen.