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US PCE inflation overview

Friday’s economic docket highlights the release of the Personal Consumption Expenditures (PCE) Price Index data, due later during the early North American session, at 12:30 GMT. The Fed’s preferred inflation gauge – the Core PCE Price Index – is expected to surpass the 0.4% gains seen in the previous month and climb 0.6% MoM in April. On an annualized basis, the index is anticipated to have risen from 1.8% in March to 2.9% during the reported month, considerably above the central bank’s nominal 2% target.

How could it affect EUR/USD?

Ahead of the key release, the US dollar was supported by the overnight report that US President Joe Biden will announce a $6 trillion budget for the fiscal year 2022. A fiscally-expansive budget fueled optimism over the economic recovery and stoked worries about rising inflationary worries. This might force the Fed to tighten its monetary policy sooner rather than later. A stronger reading will validate the higher inflation narrative and trigger a fresh bout of the short-covering move around the USD. This, in turn, should pave the way for an extension of the EUR/USD pair’s ongoing retracement slide from multi-month tops touched earlier this week.

Meanwhile, Yohay Elam, FXStreet’s own Analyst offered a brief technical outlook for the EUR/USD pair: “Euro/dollar has dropped below the 50 Simple Moving Average on the four-hour chart and momentum has turned negative. Bulls may find some solace in the fact that the currency pair still trades above the 100 and 200 SMAs. Nevertheless, bears are gaining ground.”

Yohay also provided important technical levels to trade the major: “Some support awaits at 1.2155, which provided support last week. It is followed by 1.2105, a cap from earlier in the month, and then by 1.2075. Some resistance is at the recent high of 1.2210, followed by the former triple top of 1.2245 and finally by the May peak of 1.2266.”

Key Notes

  “¢    US PCE inflation preview: Gold remains key asset to watch

  “¢    EUR/USD Forecast: Big budget, end-of-month flows and downside momentum all point lower

  “¢    EUR/USD remains depressed below 1.2200, focus on US PCE, budget

About the US core PCE

The Core Personal Consumption Expenditure released by the US Bureau of Economic Analysis is an average amount of money that consumers spend in a month. “Core” excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. A high reading is bullish for the USD, while a low reading is bearish.