US PCE Price Index Overview

Friday's US economic docket highlights the release of the Core Personal Consumption Expenditure (PCE) Price Index for July, scheduled later during the early North American session at 12:30 GMT. The gauge is expected to rise by 0.6% MoM during the reported month as compared to the 1% increase in June. The yearly rate, however, is anticipated to accelerate to 7.4% in July from the 6.8% previous. Meanwhile, the Core PCE Price Index - the Fed's preferred inflation measure - is anticipated to ease to a 4.7% YoY rate from 4.8% in June.

How Could it Affect EUR/USD?

A stronger-than-expected report will cement expectations that the Fed will continue to hike interest rates to tame inflation. This should result in higher US Treasury bond yields and a stronger USD, which, in turn, should exert fresh downward pressure on the EUR/USD pair.

A weaker reading could prompt some US dollar selling and provide a modest lift to the EUR/USD pair. That said, concerns about an extreme energy crisis in Europe should continue to act as a headwind for the shared currency and keep a lid on any meaningful upside for the major.

That said, the immediate market reaction is more likely to be short-lived as investors might prefer to move on the sidelines ahead of Fed Chair Jerome Powell's speech at the Jackson Hole Symposium.

Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the major and writes: “EUR/USD continues to fluctuate between key technical levels for the third straight day on Friday. The Relative Strength Index (RSI) indicator on the four-hour chart moves sideways near 50, reflecting the pair's indecisiveness.”

Eren also outlines important technical levels to trade EUR/USD: “On the upside, 1.0000 (psychological level, static level) aligns as key hurdle. Above that level, 1.0020 (Fibonacci 23.6% retracement of the latest downtrend) could act as interim resistance before 1.0040 (50-period SMA) and 1.0080 (Fibonacci 38.2% retracement).”

“Immediate support is located at 0.9960 (20-period SMA). If that level is confirmed as resistance, additional losses toward 0.9920 (end-point of the downtrend) and 0.9900 (psychological level, multi-year lows) could be witnessed,” Eren adds further.

Key Notes

  •   US PCE Inflation Preview: Powell to steal the limelight

  •   EUR/USD Forecast: Euro defines key levels for the next breakout

  •   EUR/USD to tumble towards 0.97 by year-end – Nordea

About the US PCE Price Index

The Personal Spending released by the Bureau of Economic Analysis, Department of Commerce is an indicator that measures the total expenditure by individuals. The level of spending can be used as an indicator of consumer optimism. It is also considered as a measure of economic growth: While Personal spending stimulates inflationary pressures, it could lead to raise interest rates. A high reading is positive (or Bullish) for the USD.