EUR/USD analysis: still bearish despite Friday's bounce, eyeing US PCE inflation

EUR/USD Current price: 1.1403

  • USD Q3 GDP up 3.5%, although tariffs started weighing on economic growth.
  • Fed's favorite inflation measure seen unchanged at 2.0% YoY in September.

The American dollar continued appreciating early Friday but ended the day giving up ground against most of its rivals, to close it lower. The EUR/USD pair, bottomed at 1.1335 to close a couple of pips above the 1.1400 figure, down for a second consecutive week. The greenback eased despite upbeat Q3 GDP, as the preliminary growth estimate for the three months to September came in at 3.5%, above the 3.3% expected. Partially offsetting the headline was PCE inflation, up by less-than-expected in the same period,  just 1.6% vs. 2.1% in the previous quarter. Also, and in spite of the encouraging headline, the report showed that tariffs started to weigh on growth with exports falling and imports rising strongly. The Michigan Consumer Sentiment Index was downwardly revised to 98.6 from the first estimate of 99.00, adding to dollar's weakness at the end of the week. Meanwhile, stocks remained under selling pressure, with the risk-averse decline fueled by softer-than-expected earnings reports from big names.

Monday will bring the release of the US September PCE inflation, the Fed's favorite measure when it comes to making decisions. The market expects a 0.1% monthly advance, while the yearly reading is foreseen up by 2.0%, matching the previous reading. A disappointing number, particularly considering the quarterly outcome, could hurt the greenback, although it seems quite unlikely that a single negative reading can deviate the Federal Reserve from its tightening path.

The recovery of the EUR/USD pair fell short of changing the negative bias according to the daily chart, as it continues developing far below all of its moving averages, with a bearish 20 DMA being the nearest at around 1.1500, and more relevant, it was unable to advance beyond 1.1430, former October monthly low. In the mentioned chart, technical indicators have recovered alongside the price, but remain well into negative ground and with the upward potential limited. Shorter term, and according to the 4 hours chart, the upside seems limited, as the pair settled around a bearish 20 SMA, while technical indicators decelerated their advances after reaching their midlines, where they currently stand. The mentioned 1.1430 level is an immediate resistance, with follow-through beyond it exposing the 1.1520 region, should the dollar remain under pressure.

Support levels: 1.1360 1.1335 1.1300  

Resistance levels: 1.1430 1.1470 1.1520

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