EUR/USD: Focus on PCE

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In a climate of growing risk appetite, the Euro managed to gain a few pips again against the Dollar, following yesterday’s publication of a fairly significant downward revision of American growth in the third quarter. Statistics which can only argue for confirmation of a first drop in Fed Funds during next year.

American growth turned out to be less intense than expected in the third quarter, with gross domestic product increasing by 4.9% at an annualized rate. This figure was revised down from the previous estimate, which showed growth of 5.2%. Still on the economic activity front, the Philly Fed index, which measures economic activity in the Philadelphia region, fell more than expected, to -10.5 against a consensus of -3 and after -5 .9 in November. On the job market side, weekly unemployment registrations increased by 3,000 units to 205,000 last week. But it’s still 10,000 less than consensus expectations.

These degraded indicators therefore fuel hopes for future key rate reductions from major central banks, including in particular the American Federal Reserve (Fed).

Next big meeting for currency traders, and the last before Christmas: the PCE (personal consumption expenditures) prices, to be published at 2:30 p.m. This is the Fed’s preferred barometer in its assessment of inflation. Economists surveyed by the Wall Street Journal anticipate a rate excluding food and energy prices of 0.1% over one month and 3.3% over one year.

Basically, currency traders continued to digest the messages sent by the Fed and the ECB last week. Messages which showed significant changes in the communication of these two major central banks.

“The Fed made a significant change in communication by indicating that the possibility of rate cuts had been discussed. This appears premature given the resilience of growth, a robust job market and the inflation still high”, judge the OSTRUM AM strategists.

“The ECB, for its part, remained cautious due to the strong increase in unit labor costs. It is waiting for data from the first half of 2024 to judge the evolution of salaries,” they continue before concluding that “a divergence major change has thus taken place between the Fed and the ECB. Despite the ECB’s efforts to contain market expectations, the latter have retained the significant change in communication from the Fed and anticipate rate cuts that are still too aggressive.”

Also to be monitored is the consumer confidence index (U-Mich, revised data) at 4:00 p.m.

At midday on the foreign exchange market, the Euro was trading against $1.1030 approximately.

KEY GRAPHIC ELEMENTS

The currency pair is in the process of breaking through a chart resistance level at $1.1012. This level would be definitively swept away in the event of an increase in volatility.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is neutral in the medium term on the Euro Dollar (EURUSD).

We will maintain this neutral opinion as long as Euro Dollar (EURUSD) prices are positioned between support at 1.0693 USD and resistance at 1.1069 USD.

DAILY DATA CHART