Buying EURUSD on condition of low consumer spending in U.S.

29 March 2024 90
Buying EURUSD on condition of low consumer spending in U.S.

Today, investors will get important U.S. economic data with the release of the February Personal Consumption Expenditures (PCE) index.

Economists surveyed by the Wall Street Journal predicted that the index is expected to show once again that price pressures remain elevated.

The core rate, which excludes volatile food and energy components known as the Fed's preferred inflation gauge, is forecast to rise 0.3% in February, a step lower than the previous month. On a year-on-year basis, core inflation is projected to remain at 2.8%.

A rise in the most recent consumer price index caused some anxiety on Wall Street earlier this month, forcing some investors to lower their expectations on the timing of the central bank's first interest rate cut. That's why Friday's PCE report will be "more important than usual" as it will show whether previous inflation readings were temporary setbacks or the start of a new trend of "higher-for-longer-inflation over a longer period of time," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Fed officials last week left interest rates unchanged for a fifth straight meeting, while the central bank's new "dot plot" showed policymakers maintained their forecast of a 75-basis point rate cut by the end of 2024. According to the CME FedWatch Tool, there is about a 61% possibility that the first 25 basis point rate cut will occur in June.

Here, it should be kept in mind that strong volatility can be caused if the value of the indicator at its publication is on the opposite side than expected according to the consensus opinion. That is, a low value of the index will cause a sharp short-term strengthening of EURUSD.

From a technical point of view, this scenario is supported by the formed divergence of the EURUSD chart with the RSI indicator.

The final recommendation is to buy EURUSD provided the Personal Consumption Expenditure Index comes out below the forecast estimate.

Profit should be taken at the level of 1.0850.

A stop-loss should be set at the level of 1.0730.

This content is for informational purposes only and is not intended to be investing advice.

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