The EUR/USD pair experienced a rollercoaster ride on Friday following the release of US core Personal Consumption Expenditures Price Index (PCE) data for March. The pair initially edged higher but then took a sharp turn lower after the report showed a higher-than-expected reading of 2.8% year-over-year, compared to analysts’ expectations of 2.6%. This unexpected data caused the EUR/USD to fall back below the key 1.0700 handle.
The implications of the March core PCE data had traders reevaluating their expectations for a potential interest rate cut by the Federal Reserve. The probability of a rate cut in September increased from 59% to 60% following the release of the data. Additionally, other data in the PCE report, such as the headline Personal Consumption Expenditures Price Index rising to 2.7%, further influenced market sentiment.
The decline in the EUR/USD pair can also be attributed to the release of US first-quarter GDP data on Thursday, which showed higher-than-expected inflationary data. This led to a temporary strengthening of the US Dollar as markets adjusted their expectations of when the Fed might cut interest rates.
Despite the initial decline, technical analysis suggests that the EUR/USD pair continues to correct higher, with a rising sequence of peaks and troughs indicating a short-term bullish trend. Resistance levels at 1.0757 and 1.0807 are potential targets if the pair continues to move higher. However, a break below the April 16 low of 1.0601 could revive the Bear Flag hypothesis, with potential downside targets at 1.0503 and 1.0448.
Overall, the EUR/USD pair’s movements following the release of US PCE data highlight the impact of economic indicators on currency markets and the importance of monitoring central bank policies, such as those of the Federal Reserve, in shaping market sentiment.
