US PCE Price Index Overview
Friday's US economic docket highlights the release of the Personal Consumption Expenditure (PCE) Price Index, scheduled later during the early North American session at 12:30 GMT. The gauge is anticipated to have risen by 0.2% in February as compared to the 0.6% increase in the previous month. The yearly rate possibly edged lower to 5.3% from 5.4% in January. Meanwhile, the Core PCE Price Index - the Fed's preferred inflation measure - likely held steady at the 4.7% YoY rate and rose 0.4% in February.
Analysts at TD Securities (TDS) offer a brief preview of the report and write: “We expect core PCE price inflation to slow down from a robust 0.6% MoM in Jan to a still-strong 0.4% in Feb (also below core CPI's 0.5% MoM gain). The YoY rate likely rose a tenth to 4.8%, suggesting the path to normalization in price gains will be bumpy. Conversely, personal spending likely fell, but that would follow an eye-popping 1.8% surge in the prior month.”
How Could it Affect EUR/USD?
Ahead of key macro data, the US Dollar (USD) regains positive traction amid hopes that the Federal Reserve might shift back to its inflation-fighting interest rate hikes. A surprisingly stronger report will reaffirm hawkish Fed expectations and prompt some near-term USD short-covering move. This, in turn, will set the stage for some meaningful corrective pullback for the EUR/USD pair, from a nearly two-month high touched on Thursday.
Conversely, weaker PCE data will fuel fresh speculations that the US central bank might soon pause the rate-hiking cycle. This, along with the prevalent risk-on environment and easing fears of a full-blown banking crisis, should weigh on the safe-haven buck and provide a fresh lift to the EUR/USD pair. Apart from this, the prospects for additional rate hikes by the Europen Central Bank (ECB) suggest that the path of least resistance for spot prices is to the upside.
Eren Sengezer, Editor at FXStreet, offers a brief technical outlook for the major and writes: “EUR/USD has met resistance in the 1.0900/1.0910 (psychological level, end-point of the latest uptrend) area late Thursday, confirming that level as a significant resistance. The Relative Strength Index (RSI) indicator on the four-hour chart declined toward 60, pointing to a loss of bullish momentum.”
Eren also outlines important technical levels to trade the EUR/USD pair: “In case the pair manages to hold above 1.0860 (ascending trend line, 20-period Simple Moving Average (SMA)), however, buyers could remain interested. In that scenario, EUR/USD needs to rise above 1.0900/1.0910 and use that level as support to be able to clear 1.0930 (static level, March 23 high) and target 1.1000 (psychological level).”
“On the downside, a four-hour close below 1.0860 could attract sellers and cause the pair to decline to 1.0820 (Fibonacci 23.6% retracement of the latest uptrend, 50-period SMA) and 1.0800 (psychological level),” Eren adds further.
• US February PCE Inflation Preview: Bad news for the Dollar, good news for the Fed?
• US Core PCE: Banks Preview, inflation still too hot
• EUR/USD Forecast: Euro bulls stay on sidelines ahead of US inflation data
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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