Euro ticks lower as market braces for US PCE inflation data

• The Euro is trading with a moderate bearish tone, yet still within previous ranges around 1.0950. 
• Risk appetite has faded on Thursday, increasing pressure on the Euro.
• The focus is now on the US PCE Price Index for more cues on the Fed’s policy outlook.

The Euro (EUR) is trading with a moderate bearish tone at the mid-range of 1.0900 on Thursday’s European morning session. The negative market mood, reflected by the negative opening on European stock markets and investors’ caution ahead of the US Personal Consumption Expenditures (PCE) Price Index is weighing on the common currency.

European Central Bank (ECB) Vice-President Luis De Guindos has reaffirmed President Christine Lagarde’s hawkish position, playing down any possibility of monetary easing, although the recent macroeconomic data show otherwise.

Data released on Tuesday showed that Eurozone construction output declined, adding to evidence that the region’s economy is stuttering. Beyond that, the German Federation of Industries (BDI) warned that the Eurozone’s largest economy is heading for a recession, which has increased pressure on the Euro.

The focus is now shifting towards an array of key US indicators. Today, the Initial Jobless Claims and the final reading of the Q3 Gross Domestic Product (GDP) might provide some guidance to US Dollar crosses. The highlight of the week, however, is the PCE Price Index, which will be analyzed in detail to assess the timing for the first Federal Reserve’s (Fed) rate cuts.

Daily digest market movers: Euro treads water as market braces for US data

• The Euro has lost steam, although it maintains its broader positive bias intact, with bears contained well above the 1.0880 support area.
   
• ECB Vice-President De Guindos acknowledges a clear downtrend in inflation but affirms that is too early to talk about rate cuts.
   
• Market sentiment deteriorated on Wednesday, and the risk-averse mood has extended into the Asian and European sessions, providing some support to the safe-haven USD.
   
• The Greenback, however, remains depressed, with the US bond yields near multi-month lows on hopes of Fed cuts in early 2024.
   
• Investors are pricing a nearly 75% chance of a quarter-point rate cut in March followed by another one in May, according to data by the CME Group Fed Watch Tool.
   
• In the calendar today, US GDP is expected to confirm a 5.2% annualized growth in the third quarter, and Initial Jobless claims are seen growing to 220K from 202K in the previous week.
   
• The main focus, however, is the US PCE Prices Index, due on Friday. The Fed’s preferred inflation measure is seen dipping below the 3% year-on-year rate for the first time in almost three years. A soft PCE inflation reading would increase bearish pressure on the USD.

Technical Analysis: Euro fluctuates around 1.0950 ahead of US PCE Inflation data

The Euro is trading without a clear direction around the 1.0950 level, with a moderate bearish tone on Thursday as the risk appetite seen earlier this week faded. 

The pair has been looking for direction after rejection at levels right below
1.1000, with US Dollar weakness keeping the common currency from a deeper correction so far.

From a wider perspective, the broader trend remains bullish, although resistance at the 1.1010 area is likely to be a serious obstacle. Above here, the next targets would be the August high at 1.1060, and the July 24 and 27 high at 1.1150.

To the downside, the pair should break the 1.0880 and the 4-hour 100 Simple Moving Average (SMA) at 1.0870 to increase bearish pressure. In this scenario, bears’ focus could shift towards 1.0825 on the way to December lows at 1.0715.