EUR/USD: Core PCE prices focus the attention of forex traders

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Major meeting at 2:30 p.m. (Paris time) for currency traders this Thursday, with core prices (personal consumption expenditures). Methodologically different from CPI (consumer prices), PCE constitutes the Fed’s preferred inflationary barometer, and therefore counts greatly in its strategic thinking. Unlike the CPI, it only measures goods and services intended for and consumed by individuals. Prices are weighted based on total spending per item, which provides important insights into consumer spending behavior.

In the event of a significant deviation from the consensus, the rate trajectory could be readjusted. These prices, excluding food and energy, are expected to increase by 0.4% monthly, compared to +0.2% the previous month.

“The consensus stands at +0.4% for “core” PCE inflation in monthly variation, which would be the strongest progression observed since February 2023. On the other hand, the consensus is +2.8% in annual data, which would mark a continuation of the improvement towards the Fed’s objective of 2%, knowing that the figure stood at 2.9% in January”, notes Alexandre Baradez (IG France).

In the immediate future, the CME Group’s FedWatch tool puts the probability of a drop in Fed Funds yields on May 1, at the end of the next FOMC, at 16.9%.

Yesterday, currency traders took note of the figures for Q4 GDP growth in preliminary data, at +3.2% at an annualized rate, a slight downward revision compared to the advanced data. Note that preliminary data is released after the very first estimates, and before the final data.

At midday on the foreign exchange market, the Euro was trading against $1.0845 approximately.

KEY GRAPHIC ELEMENTS

The 20-day moving average (in dark blue), which until now conveniently served us as a trailing stop, has been clearly exceeded. We therefore no longer offer short positions, and remain on the lookout for a new attractive entry point. If the spot were to break its 20-day moving average in a significant level of volatility, we could then speak of a false exit since February 20. This dynamic level is to be monitored, therefore.

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 1.0810 USD and resistance at 1.0940 USD.

DAILY DATA CHART