EUR/USD sinks to multi-week lows near 1.0540 post-US PCE

EUR/USD sees its decline accelerate to new lows near 1.0540 in the wake of the release of US PCE on Friday.

EUR/USD remains offered well below 1.0600

The selling momentum in EUR/USD gathers extra traction on the back of the unabated advance in the greenback, which lifts the USD Index (DXY) to fresh highs past the 105.00 barrier after US inflation figures tracked by the PCE came on the strong side in January.

Indeed, the pair loses further ground after the US headline PCE rose 5.4% in the year to January (from 5.3%) and the Core PCE gained 4.7% from a year earlier, both prints surpassing initial estimates.

Further data saw Personal Income expand 0.6% MoM also in January and Persona Spending increase 1.8% vs. the previous month. Later in the session, New Home Sales and the final Michigan Consumer Sentiment print will close the weekly docket across the pond.

Also next on tap appears the speeches by FOMC Governor P.Jefferson (permanent voter, centrist) and Cleveland Fed L.Mester (2024 voter, hawk).

What to look for around EUR

Price action around EUR/USD remains subdued and forces the pair to clock fresh lows in the mid-1.0500s in response to the firmer note in the dollar.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the bank has already anticipated another 50 bps rate raise at the March event.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Final Q4 GDP Growth Rate/GfK Consumer Confidence (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.33% at 1.0559 and a drop below 1.0545 (monthly low February 24) would target 1.0481 (2023 low January 6) en route to 1.0329 (200-day SMA). On the other hand, the next up barrier emerges at 1.0714 (55-day SMA) followed by 1.0804 (weekly high February 14) and finally 1.1032 (2023 high February 2).