The core Personal Consumption Expenditures (PCE) Price Index, a key inflation measure favored by the US Federal Reserve (Fed), is scheduled for release by the US Bureau of Economic Analysis (BEA) at 12:30 GMT on Friday.
What to Expect in the PCE Inflation Data
The core PCE Price Index, which excludes volatile food and energy prices, is considered the more influential gauge of inflation for Fed policy decisions. Analysts anticipate a 0.3% monthly increase in April, matching March’s uptick. On an annual basis, April core PCE is forecasted to grow by 2.8%, while headline PCE inflation is expected to hold steady at 2.7% year-on-year (YoY).
Earlier in May, the US Bureau of Labor Statistics reported a 3.4% yearly increase in the Consumer Price Index (CPI) for April, with the core CPI rising by 3.6% during the same period, down from 3.8% in March.
Previewing the PCE inflation report, analysts at TD Securities noted a potential loss of momentum in April following a strong start to the year. They forecast the core index to advance by 0.22% month-on-month (m/m), revised down from an initial estimate of 0.25%. Additionally, they expect the headline to rise by 0.23% m/m, with the supercore likely cooling to 0.26%.
Market Reaction and Potential Impact on EUR/USD
The PCE inflation data release holds significance for the market, particularly for the EUR/USD pair. The CME Group FedWatch Tool indicates minimal expectations for a Fed interest rate cut in June or July, with around a 48% probability of the policy rate remaining unchanged in September.
Depending on the outcome of the core PCE data, the US Dollar (USD) could experience varying responses. A higher-than-expected reading may deter investors from pricing in a rate reduction in September, potentially boosting the USD against its counterparts. Conversely, a lower-than-expected reading could prompt a USD selloff, potentially driving EUR/USD higher ahead of the weekend.
Technical Outlook for EUR/USD
Despite recent downward movements, the Relative Strength Index (RSI) indicator on the daily chart suggests a lack of bearish pressure for EUR/USD. The pair has found stability above the 1.0780-1.0800 region, where key Simple Moving Averages (SMA) are situated. A drop below this area, followed by resistance, could signal further downward pressure, with potential targets at 1.0700 and 1.0600.
On the upside, resistances are seen at 1.0900, 1.0950, and 1.1000. However, sustained buyer interest relies on the 1.0780-1.0800 area remaining as support.
Related Topics:
