Euro tests four-month highs ahead of US PCE inflation data

• The Euro appreciated further on US Dollar weakness to test resistance at 1.1010. 
• The US Dollar dropped again on Thursday, hammered by downbeat US data.
• The focus shifts towards the US PCE Price Index for more cues on the Fed’s policy outlook.

The Euro (EUR) resumed its broader uptrend on Thursday and returned to the 1.1010 resistance area on Friday, buoyed by the weakness of the US Dollar. A set of downbeat US data reaffirmed investors’ expectations that the US Federal Reserve (Fed) will start easing its monetary policy in early 2024.

Data released on Thursday showed that the United States economy grew at a slower pace than previously estimated in the third quarter. These figures came accompanied by weaker manufacturing data and signs of easing inflation, which are consistent with the theory of a soft landing ahead.

The market has been celebrating the end of the tightening cycle this week and awaiting November’s Personal Consumption Expenditure (PCE) Price Index data to confirm the timing of the kick-off for the easing cycle. The Fed’s favourite inflation gauge is expected to show further deceleration on price pressures which, if confirmed, might increase US Dollar’s weakness.

Daily digest market movers: Euro is pushing higher ahead of US PCE Inflation

• The Euro is tight below four-month highs, awaiting the release of US PCE Price Index data.
   
• Later today, the US PCE Prices Index is expected to have remained flat in November on month, with the yearly rate declining below the 3% level for the first time in almost three years.
   
• The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, is seen growing steadily at 0.2% and down to 3.3% from 3.5% in the year.
   
• On Thursday, US Q3 GDP was revised to a 4.9% annualized growth from the previous 5.2% estimate.
   
• The Philadelphia Fed Manufacturing index dropped to -10.5 in December from -5.9 in November; the market expected a moderate improvement to -3.
   
• US Personal Consumption Expenditures eased to 2.6% in Q3, the consensus anticipated a 2.8% reading, unchanged from Q2.
   
• US Jobless claims increased by 205K from 203K in the previous week, well below the 215K expected. However, this data was offset by the downbeat GDP and manufacturing figures.
   
• Investors are pricing a nearly 75% chance of a quarter-point rate cut in March and 250 bps cuts in 2024, according to the CME Group Fed Watch Tool.

Technical Analysis: Euro pushes against 1.1010 resistance

The Euro stretched higher on Thursday, favoured by further USD weakness after weak US data. The pair is under increasing bullish pressure on Friday’s European session, with bulls pushing against the November and December swing high at 1.1010, awaiting the release of the US PCE Price Index.

The broader trend remains bullish, with the mentioned 1.1010 closing the path towards the early August high at 1.1060, and the July 24 and 27 peak,  at 1.1150.

To the downside, support levels are 1.0930 ahead of a key support area above the 4-hour 100 Simple Moving Average (SMA) at 1.0870. Below here, bearish pressure might increase, with the early December lows at 1.0730 coming into play.