EURUSD Drops Further On Soft US PCE Data

Summary:
• The US Personal Consumption Expenditures fell marginally YoY in July, bringing pressure to EURUSD. Is the dollar about to turn around?

EURUSD extended its decline to the third session in a row on Friday, with traders ignoring the decline in US Personal Consumption Expenditure (PCE). The pair traded at -0.1 percent in the New York session, trading at 1.1064. The pair has lost its strength despite an impending Fed interest rate cut starting in September.

The US dollar has support after the US PCE came in at 0.2 percent on a monthly basis in July, to match forecast estimates. However, the annualised rate was slightly below the forecast figure, printing out at 2.5 percent versus 2.6 percent. The soft figures mean the Fed will likely refrain from aggressive interest cut, bringing relief to the dollar.

EURUSD was already under pressure after Thursday’s US GDP figures showed a faster-than-expected growth rate by the world’s largest economy. This has seen the euro’s glitter fade despite a fall in the Eurozone unemployment rate, pointing to the heavy weight placed on US interest rates. The Eurozone’s unemployment rate fell to 6.4 percent in July, lower than analysts’ forecasts that had predicted it to remain unchanged at 6.5 percent.

EURUSD forecast

On the 2-hour chart shown below, the momentum indicators favour the continuation of the downside. The currency pair is below the Volume Weighted Moving Average (VWMA), which currently corresponds to 1.1081, signaling control by the sellers. Meanwhile, the RSI indicator reading at 35 adds support to the bearish view.

Support and resistance

The 30-minute chart calls for the downside if resistance persists at 1.1015. That will likely bring the first support at 1.1010. However, if the bearishness continues at that point, the resulting momentum could break that support and send the currency pair lower to test 1.1000.

On the other hand, moving above 1.1015 will signal a shift in control to favour the buyers. In that case, the first resistance could come at 1.1020. However, further control by the bulls could break above that mark, invalidating the downside narrative and potentially pushing EURUSD further up to test 1.1028.