EUR/USD Moves Higher On Fed Rate Expectations And PCE Data Focus
EUR/USD edged higher to around 1.1370 in early European trading on Thursday after markets began to price a potential US rate rise as soon as September following last week’s hawkish message from Kevin Warsh as the new Federal Reserve chair. Attention later in the session turns to the US Personal Consumption Expenditures (PCE) report, which could prompt a more cautious tone.
Headline PCE is forecast to rise 4.1% year on year in May, up from 3.8%, while core PCE is seen at 3.4% versus 3.3% in April; a stronger print would reinforce expectations for further tightening and support the US Dollar against the Euro. Technically, the pair remains under pressure, trading below the 20-day Bollinger simple moving average and well beneath the 100-day moving average, with the lower band near 1.1351 close by and the Relative Strength Index (14) at 28.3 in oversold territory. Support sits around 1.1350, then 1.1300, while resistance levels are seen at 1.1411, 1.1530 and 1.1650.
Central Bank Divergence And Policy Impact
We see the EUR/USD pair hovering near 1.0750 this morning, with the key driver being the policy split between central banks. The Federal Reserve remains hesitant to cut rates amid persistent inflation, while the European Central Bank already initiated a rate cut earlier this month on June 6th. This divergence puts underlying pressure on the Euro.
All attention now shifts to the upcoming US Personal Consumption Expenditures (PCE) inflation report. We are forecasting the core PCE, the Fed’s preferred inflation metric, to come in at 2.7% year-over-year, which would be a slight moderation but still well above the Fed’s target. A higher-than-expected figure would reinforce the “higher for longer” rate narrative and likely boost the US Dollar.
Technical Outlook And Key Levels
From a technical standpoint, we note the EUR/USD continues to struggle below its 50-day moving average, keeping the broader outlook bearish. The Relative Strength Index (RSI) is lingering just above the 30 oversold level, suggesting that while the downtrend is mature, there isn’t yet a strong signal for a reversal. This environment makes selling short-term rallies a potentially viable strategy for options traders.
For those trading derivatives, we are watching key levels for positioning in the coming weeks. Immediate support sits at the 1.0700 psychological level, and a firm break below could open a path toward the year-to-date lows near 1.0650. Any upward bounce will face significant resistance around the 1.0810 area, which represents the 50-day moving average.
