FX traders are preparing for a busy final session of the week on Friday, with key inflation data due out of the US. The Core PCE Price Index data is well known as the Fed’s favoured inflation indicator, and with expectations of a September rate cut from the Fed now again around the 90% level, traders are preparing for big moves in currencies if the data comes out away from expectations.
All of the major pairs will move on any “miss” in the data; however, the euro is lining up particularly well from a technical perspective for a big move, especially if the data comes in higher than expected.
The dollar moved strongly south after Jerome Powell’s speech at Jackson Hole last Friday, taking the euro to monthly highs just under 1.1750. However, there has been some recovery this week for the greenback, especially against the euro, as French political issues have weighed on the single currency. It is currently trading around the 1.1650 level, but a stronger print in the inflation data could combine with geopolitical issues in the Eurozone to push the pair through close support levels and see it break into a fresh downside range.
Expectations are for a 0.3% month-on-month increase for the PCE number, with the year-on-year expected to show a 2.9% increase—a level which could increase inflationary concerns in the FOMC. A weaker number, of course, would lock in that interest rate cut for September, increase expectations for another cut before the end of the year, and send the euro back higher to challenge the monthly highs and the key longer-term trendline resistance level just above 1.1800.
Resistance 2: 1.1818 – Long-Term Trendline Resistance
Resistance 1: 1.1742 – August High
Support 1: 1.1589 – Long-Term Support Trendline
Support 2: 1.1389 – August Low
