US PCE Price Index Overview
Friday's US economic docket highlights the release of the Core Personal Consumption Expenditure (PCE) Price Index, scheduled later during the early North American session at 13:30 GMT. The Fed's preferred inflation gauge is foreseen to rise by 0.2% in December, matching the previous month's reading. The year rate, however, is anticipated to have eased from 4.7% in November to 4.4%.
Analysts at Deutsche Bank, meanwhile, anticipate a rather stronger reading and write: “We don't expect the same declines as recently seen in CPI as some of the stronger components in PPI last week are better correlated to PCE components. We expect a +0.4% monthly gain.”
How Could it Affect EUR/USD?
Against the backdrop of the upbeat fourth-quarter US GDP report, a surprisingly stronger print will fuel speculations that the Fed will stick to its hawkish stance for a longer period. This, in turn, should prompt some near-term short-covering move around the US Dollar and drag the EUR/USD pair further away from a nine-month high touched earlier this week.
Conversely, weaker PCE data will cement expectations that the Fed will slow the pace of its policy-tightening cycle and lifts bets for a smaller 25 bps rate hike in February. This could exert downward pressure on the already weaker greenback. The market reaction, however, is likely to remain limited as the focus remains on the FOMC and ECB policy meetings next week.
Eren Sengezer, Editor at FXStreet, offers a brief technical outlook for the pair and writes: “EUR/USD broke below the ascending regression channel late Thursday. Although the pair returned within that channel during the Asian trading hours, it lost its recovery momentum and closed the last four-hour candle below the lower-limit. Furthermore, the pair now trades below the 20-period Simple Moving Average (SMA) and the Relative Strength Index (RSI) indicator stays slightly below 50, suggesting that buyers remain on the sidelines.”
Eren also outlines important technical levels to trade the EUR/USD pair: “On the downside, 1.0850 (static level, 50-period SMA) aligns as key support level. In case EUR/USD falls below that level and starts using it as resistance, it could continue to push lower toward the 1.0800/1.0790 area (psychological level, static level, 100-period SMA).”
“If EUR/USD rises above 1.0900 (20-period SMA, lower limit of the channel) and stabilizes there, it could extend its rebound toward 1.0930 (mid-point of the ascending channel, static level) and 1.0980 (former support, static level),” Eren adds further.
Key Notes
• US December PCE Inflation Preview: Is there room for further US Dollar weakness?
• US Core PCE Preview: Forecasts from seven major banks, decline continues
• EUR/USD Forecast: Euro faces key support at 1.0850
About the US PCE Price Index
The Personal Spending released by the Bureau of Economic Analysis, Department of Commerce is an indicator that measures the total expenditure by individuals. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth: While Personal spending stimulates inflationary pressures, it could lead to raise interest rates. A high reading is positive (or Bullish) for the USD.
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