Euro holds above mid-1.1600s vs USD; looks to US PCE data for fresh impetus

EUR/USD edges lower on Wednesday amid a modest USD uptick ahead of the US PCE data.
Iran diplomacy hopes and easing inflation fears keep a lid on further gains for the Greenback.
The divergent Fed-ECB bets back the case for the emergence of dip-buying around the pair.

Haresh Menghani FXStreet

The EUR/USD pair struggles to capitalize on the previous day's modest bounce from the weekly low, and trades with a negative bias through the early European session on Wednesday. Spot prices, however, hold above mid-1.1600s and remain well within striking distance of the highest level since May 14, touched last week, as traders await more cues about the US Federal Reserve's (Fed) interest rate path.

Hence, the focus will remain glued to the release of the US Personal Consumption Expenditures (PCE) Price Index later today and Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday. The Fed's policy outlook will play a key role in influencing the near-term US Dollar (USD) price dynamics. In the meantime, the supportive fundamental backdrop is holding back traders from placing bearish bets on the EUR/USD pair.

Expectations have shifted toward a policy hold at the September 15–16 FOMC meeting amid signs of cooling US price pressures and a sluggish labor market. In contrast, three sources told Reuters that European Central Bank (ECB) policymakers are ready to raise interest rates at their next meeting in September to contain the side effects of the Iran war. The divergent Fed-ECB outlooks, in turn, continue to lend some support to the EUR/USD pair.

Meanwhile, the US Treasury's buyback strategy, along with easing inflationary fears due to a fall in crude oil prices, leads to a further decline in US bond yields. This, along with renewed hopes for a diplomatic resolution to end a six-month-old US-Iran war, should keep a lid on further gains for the safe-haven Greenback. Hence, any meaningful corrective pullback in the EUR/USD pair is more likely to be bought into and remain limited.

EUR/USD daily chart

Technical Analysis

The EUR/USD pair holds above the 61.8% Fibonacci retracement level of the Apri-June decline and seems poised to extend its advance above the long-term 200-day Simple Moving Average (SMA). The next relevant hurdle is the 78.6% Fibo. retracement at 1.1738, where a sustained move higher would open the way toward the cycle high at 1.1852.

On the downside, initial support emerges in the 1.1649/1.1632 confluence – comprising the 61.8% retracement and the 200-day SMA – ahead of deeper levels at the 50% retracement at 1.1586 and the 38.2% retracement at 1.1523.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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