US Dollar Outlook: Market Focus on PCE, EUR/USD, USD/JPY

Explore the US Dollar outlook, PCE data impact, and technical analysis on EUR/USD and USD/JPY setups in this market forecast.

The US dollar, measured by the DXY index, displayed minimal movement on Monday, hovering around the 103.45 mark. However, upcoming high-impact events, such as the release of PCE data, ISM PMI, and a speech by Fed Chair Powell, are expected to inject increased volatility into the market later in the week.

Traders anticipate a shift from the FOMC’s tightening phase to a potential easing cycle in 2024. Confidence in forthcoming rate cuts relies on data revealing a decline in price pressures and a slowdown in economic activity. Thursday’s release of BEA’s personal income and outlay data will be crucial for assessing the economic outlook, with forecasts suggesting a notable slowdown in private spending and a slight decline in core PCE.

US Dollar Outlook: Market Focus on PCE, EUR/USD, USD/JPY

The Institute for Supply Management will follow with November manufacturing activity figures the next day. Despite anticipating a modest increase, the goods-producing sector may continue to experience a recession.

Any signs of softer inflation and economic slowdown could weigh on the US dollar, prompting a dovish reassessment of interest rate expectations. Fed Chair Powell’s speech on Friday at Spelman College in Atlanta holds significance, as any hints of hawkishness could drive a rally in the US currency.

EUR/USD Technical Analysis: EUR/USD has surged approximately 3.5% this month, nearing the resistance at 1.0956, corresponding to the 61.8% Fibonacci retracement of the July/October decline. While breaking this barrier may be challenging given the euro’s overbought state, a successful breakout could pave the way for a rally towards 1.1080 and 1.1275, the 2023 peak.

A potential downward reversal could lead to a test of critical support at 1.0840, with further weakness targeting the 200-day SMA around 1.0760 and the 50-day SMA near 1.0665.

USD/JPY Technical Analysis: USD/JPY made a substantial rebound late last week but faced resistance near the 50-day simple moving average, currently trading below 149.00. If losses intensify, the analysis identifies initial support near 147.25, with further downside potential extending toward the 100-day SMA and the 146.00 level. Alternatively, resuming the uptrend may encounter resistance at 149.70, with a breakout potentially leading to a rally towards 150.90 and the psychological 152.00 level.

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