EUR/USD Forecast: get ready for Fed's favorite inflation measure
- Markit PMIs revisions to have little effect on the market ahead of US PCE inflation.
- US Spending seen slowing down in January, may result in a disappointing inflation reading.
A volatile week is likely to see a peak in market activity today, with the release of multiple macroeconomic headlines including fresh 2018 US inflation figures, within consumer spending data. Ahead of the event, the dollar is up against most of its major rivals, with the EUR/USD pair consolidating around 1.2200, after Fed head Powell's hawkish comments at the semi-annual monetary policy testimony before Congress. Powell hint that more than three rate hikes this year are likely, as he upgraded his outlook from December meeting.
During the European morning, the focus will be on the final versions of the EU Markit PMIs for February. Flash estimates were slightly below January readings, although not far from record highs. Unless the final versions include sharp revisions, seems unlikely the headlines will affect much the pair. Final Markit and official PMIs in the US will also be out today.
US Personal income is expected to have advanced 0.3% in January after a 0.4% gain in the previous month, while Spending is seen flat for the month. The core PCE price index is expected to remain unchanged at 1.5% YoY for the third straight month and up 0.3% MoM from a previous 0.2%.
If core PCE surprises to the upside, the greenback would likely get an additional boost, as it will back Powell's case of four rate hikes this year. A disappointing reading, however, may not automatically mean a dollar's slump, as one soft reading won't be enough to offset Powell's words, and investors will then turn their eyes to equities and yields for direction.
Technically, the pair is consolidating around the neckline of a double top figure of around 350 pips' height, as the pair topped near 1.2540 in January and February, and overall bearish according to technical readings in the 4 hours chart, as it remains well below all of its moving averages, with the 100 SMA crossing below the 200 SMA and the 20 SMA accelerating south below the larger ones. The pair bottomed for the day at 1.2183, now some 30 pips above the level, which is barely enough to leave indicators flat near oversold readings.
A relevant support comes at 1.2164, January 17h daily low, en route to the 1.2100 price zone, where the pair established its yearly highs in 2015 and 2017. Resistances come at 1.2240, Wednesday's high, followed by the 1.2270/80 price zone. Above this last, the pair has scope to extend its recovery up to the 1.2310/20 region.
Author
Valeria Bednarik
FXStreet
Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.
