EUR/USD Rate Vulnerable to Further Losses on Sticky U.S. Core PCE

Trading the News: U.S. Core Personal Consumption Expenditure (PCE)

Updates to the U.S. Core Personal Consumption Expenditure (PCE) may keep the EUR/USD exchange rate under pressure as the Federal Reserves preferred gauge for inflation is anticipated to hold steady at 1.9% per annum for the third consecutive month in January.

Signs of sticky price growth may heighten the appeal of the U.S. dollar as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy, and the central bank may keep the door open to implement a rate-hike in 2019 as Chairman Jerome Powell and Co. project a longer-run interest rate of 2.50% to 2.75%.

In turn, a 1.9% print or higher may spark a bullish reaction in the greenback, but an unexpected downtick in the core PCE may curb the recent decline in EUR/USD as it encourages the FOMC to abandon the hiking-cycle. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that the U.S. Core PCE report had on EUR/USD during the last release

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January 2019 U.S. Core Personal Consumption Expenditure (PCE)

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EUR/USD 5-Minute Chart

Fresh data prints coming out of the U.S. economy showed the core Personal Consumption Expenditure (PCE), the Feds preferred gauge for inflation, holding steady at 1.9% per annum for the second consecutive month in December. At the same time, the measure for Personal Spending slipped 0.5% amid forecasts for a 0.3% decline, while the index for Personal Income slipped 0.1% in January after rising 1.0% during the last month of 2018.

The U.S. dollar faced a lackluster reaction following the mixed data prints, with EUR/USD struggling to hold above the 1.1400 handle as the exchange rate closed the day at 1.1363. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

• Keep in mind, the broader outlook for EUR/USD is clouded with mixed signals following the FOMC meeting as both price and the Relative Strength Index (RSI) break out of the bearish formations from earlier this year after trading to a fresh 2019-low (1.1320).

• However, the advance from the monthly-low (1.1176) following the failed attempt to break/close above the Fibonacci overlap around 1.1430 (23.6% expansion) to 1.1450 (50% retracement), with the recent string of lower highs & lows bringing the 1.1190 (38.2% retracement) to 1.1220 (7.86% retracement) area back on the radar.

• Need a break/close below the stated region to opening u the 1.1140 (78.6% expansion) region, with the next area of interest coming in around the 1.1100 (78.6% expansion) handle.

For more in-depth analysis, check out the 1Q 2019 Forecast for EUR/USD

Additional Trading Resources

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.