EUR/USD Rallies Amid Consolidation, Eyes on Key U.S. PCE Data
EUR/USD saw a rally on Thursday, but the trading pattern suggests that consolidation is ongoing. Investors are now looking to the upcoming June U.S. Personal Consumption Expenditures (PCE) report to gauge whether bearish daily technicals will continue to dominate or if longer-term bullish signals will prevail. The daily technicals indicate downside risks as the pair remains in consolidation following the decline from the July 17 daily high. EUR/USD is trading below the 10-day moving average (DMA) and the thinning daily cloud, which is expected to twist on July 31 and could potentially attract price movements.
Despite the short-term bearish outlook, longer-term technicals provide some optimism for EUR/USD bulls. The monthly Relative Strength Index (RSI) is on the rise, and the pair is trading above both the 55-DMA and 200-DMA. Additionally, the monthly charts reveal a large bull pennant continuation pattern. The forthcoming U.S. June PCE report, particularly the core readings, could disrupt this balance. The month-on-month PCE is projected to rise by 0.1% from May’s 0.0%, while the year-on-year figure is expected to decline to 2.5% from 2.6% in May. The Federal Reserve has been encouraged by recent disinflation trends, so any unexpected increase in PCE could reinforce the bearish daily technicals.
A higher-than-expected PCE reading could lead to a significant rally in yields, which have been declining since April. This might prompt investors to reduce the probability of the Fed cutting rates by 75 basis points in 2024, currently priced above 90%. This scenario could widen the German-U.S. yield spread and enhance the dollar’s yield advantage over the euro, potentially triggering a sharp decline in EUR/USD in line with daily technical signals.
During New York trading, EUR/USD opened around 1.0855 and gained ground despite an initial risk-off sentiment. The pair dipped near 1.0830 following U.S. data releases, including weekly jobless claims, Q2 GDP, and durable goods orders. However, as risk sentiment improved, the bears lost momentum, leading to a rally. An increase in EUR/JPY from the 165.30 area to 167.575 on EBS also supported EUR/USD. Additionally, rallies in oil and stocks, along with lower U.S. yields, bolstered risk assets and pushed EUR/USD up to 1.0870. The pair eventually settled near 1.0860, up 0.20% late in the session.
Technicals lean bullish with rising RSIs, and the pair holding above both the 200-DMA and 55-DMA. Key upcoming data, including Tokyo’s July CPI and the U.S. June PCE, along with their potential impact on Fed and BoJ policies, remain critical factors to monitor.
