- EUR/USD prices attempted a rebound last week, reaching the 1.0753 resistance level. However, the dollar recovered convincingly after consumer spending data showed stronger-than-expected growth in the first quarter of 2024.
- Recently, EUR/USD fell to support at 1.0674 before closing the week around 1.0692.
- Moreover, the dollar remained in focus ahead of this week's Federal Reserve policy announcement and US jobs data, which will have a strong and direct impact on forex performance led by the dollar.
According to the results of the economic data, news has indicated that the core Personal Consumption Expenditures (PCE) Price Index reached 3.7% on a quarter-over-quarter annualized basis, which is three points higher than expectations. The core PCE Price Index is included in the US Gross Domestic Product (GDP) quarterly report and is simply a measure of consumer spending. Clearly, the above consensus reading suggests strong inflationary pressures driven by demand and increases expectations that the US Federal Reserve had no choice but to keep interest rates unchanged for an extended period.
Commenting on the data results, Ali Jafri, an economist at CIBC Markets, stated that the core PCE Price Index saw a tangible acceleration from the fourth quarter's pace of 2.0%. This aligns with evidence from other inflation surveys indicating accelerating inflation trends. He added, "Slowing inflation progress will be a greater concern as core inflation reaches higher levels than expected. The Federal Reserve will need to see sustained economic slowdown and declining price pressures to feel confident about easing policy."
Previously, the US Gross Domestic Product (GDP) reading came in weaker than market expectations at 1.6% on a quarter-over-quarter annualized basis, significantly lower than the consensus forecast of 2.5% and the previous quarter's increase of 3.4%. This may somewhat restrain the progress of the US dollar, as economists suggest that inflationary pressures will eventually decrease in response to economic slowdown, which CIBC Bank expects to happen by September.
This week, Federal Reserve Chairman Jerome Powell's statements will be closely analysed by investors, seeking any clues about how long the Federal Reserve intends to wait before cutting interest rates. In his recent remarks, the Fed chief indicated that policymakers are likely to keep borrowing costs higher for longer than previously expected, citing no further progress in reducing inflation and continued strength in the job market. The latest price data, showing stubborn core inflation, alongside expectations for strong US job report next Friday, are unlikely to prompt the Federal Reserve chairman to change his tone.
Meanwhile, Powell will speak to reporters after the Federal Reserve's interest rate decision on Wednesday, widely expected to keep borrowing costs at their highest level in over two decades. Expectations for rate cuts have been pushed back until 2024, with investors now betting on at most two cuts by the end of the year.
Meanwhile, this will conclude with the monthly US jobs report, which will provide a fresh look at the Labor market in the United States. Economists expect nonfarm payroll growth to moderate in April amid steady and low unemployment.
On another note, data from the Eurozone may show that inflation has stopped decelerating, and the economy has begun to grow again, while Chinese surveys indicate strength in expansion there. Central banks from Norway to Colombia will set interest rates, while the Organization for Economic Cooperation and Development based in Paris will release new global forecasts on Thursday. In the Eurozone, data may show that inflation stabilization occurred in April for the first time this year. Consumer prices are likely to rise by 2.4% compared to the previous year, in line with March results, amid rising energy costs.
Perhaps the fundamental move that excludes such volatile elements will reassure policymakers that the travel trend is still downward, although national figures may reveal some variation. Germany and Spain, scheduled to release their data on Monday, may have experienced faster inflation. A Eurozone report will be released on Tuesday with the latest Gross Domestic Product (GDP) figures. Economists believe the region may have returned to growth of at least 0.1% in the first quarter after the shallow recession it experienced in late 2023.
EUR/USD Technical analysis and forecast:
Despite the recent attempts to rebound higher, the broader overall trend, as indicated by the performance on the daily chart below, confirms the strength of the downward trend for the Euro against the US Dollar (EUR/USD). Technically, if the price returns to the support area around 1.0630 again, expectations may strengthen for a move towards the psychological support at 1.0500 in the nearest time. Moreover, this could happen quickly if signals from the US Federal Reserve and statements from its governor support the tightening path, alongside stronger-than-expected US job numbers. On the other hand, within the same timeframe, bullish movement towards resistance levels at 1.0780 and 1.0830 will be significant for a breach of the current downtrend.
Ultimately, we are expecting narrow-range movement for the EUR/USD price until there is a reaction from investors and markets to the decisions of the US Federal Reserve and US job numbers.
Ready to trade our free trading signals? We’ve made a list of the best European brokers to trade with worth using.