PCE Data Weighs on EUR/USD as ECB Rate Hike Expectations Provide Key Support

Summary:

While the US PCE data fueled gains in the US Dollar, EUR/USD avoided a sharp sell-off, driven primarily by strong expectations of further rate hikes by the European Central Bank (ECB).

Buy EURUSD

End Time

CLOSED

1.16360

ENTRY

1.17370

TGT

1.15750

1.15739 -0.00173 -0.15%

610

Points

Loss

1.15750

CLOSING

1.16360

ENTRY

1.17370

TGT

Fundamentals

EUR/USD is currently consolidating in a narrow range around 1.1655, having hit a more than one-week low of 1.1641 overnight before attracting buying support to stabilize. Yesterday’s release of the US July PCE Price Index served as the primary driver of market volatility. The data reinforced expectations that the Federal Reserve will maintain high interest rates or even hike further, driving the US Dollar Index up toward the 99 handle and exerting notable downward pressure on the euro.

However, the euro resisted a sharp decline, largely due to strong market expectations of ECB rate hikes. Market pricing currently indicates a 96% probability of a rate hike at the ECB's September meeting, providing a solid floor for the currency. ECB Executive Board member Isabel Schnabel stated clearly on Wednesday that prolonged conflict in the Middle East and surprisingly strong eurozone economic performance pose upside risks to inflation, requiring borrowing costs to rise further. Additionally, eurozone business activity data released last Friday showed the economy expanding at its fastest pace this year, highlighting robust resilience and further cementing the ECB's hawkish stance.

Market focus has now shifted to Fed Chair Kevin Warsh’s upcoming speech at the Jackson Hole Economic Symposium on Friday, as traders seek further cues regarding the Fed's interest rate outlook. A hawkish stance from Warsh could push the US Dollar higher, exposing the euro to the risk of retesting its recent lows. Conversely, dovish remarks could allow EUR/USD to launch a rebound backed by ECB rate hike expectations. Overall, shifts in the degree of monetary policy divergence between the Fed and the ECB will dictate the pair's near-term trajectory.

Technical Analysis

On the 4-hour chart, EUR/USD has rebounded off its base and is currently consolidating at high levels following a strong advance. Key downside support lies at the 38.2% Fibonacci retracement level (around 1.16540) and the 23.6% level (around 1.15750); a breakdown below this support zone could trigger a deeper correction. Key upside resistance rests near the previous swing high of 1.17100 and the 50.0% Fibonacci retracement level (around 1.17370). A decisive breakout above this resistance cluster would open the door for gains toward the 61.8% Fibonacci level (around 1.18200).

Indicators-wise, within the Ichimoku Kinko Hyo system, the Tenkan-sen (red line: 1.16360) trades below the Kijun-sen (blue line: 1.16678), pointing to minor short-term pullback pressure. However, prices remain firmly above the ascending pink cloud (Senkou Span), with the Chikou Span (green line) positioned above price action, keeping the broader medium-to-long-term bullish trend intact. Current candlesticks are testing the top of the cloud for support to build a base.

On the ADX indicator, the ADX line stands at 23.51, with +DI (11.14) and -DI (19.43) intertwined at lower levels and -DI marginally higher. This indicates that the previous strong bullish trend has temporarily lost momentum, entering a consolidation phase to digest profit-taking before setting its next direction. PCE Data Weighs on EUR/USD as ECB Rate Hike Expectations Provide Key Support_1

PCE Data Weighs on EUR/USD as ECB Rate Hike Expectations Provide Key Support_1

Trading Recommendations

Direction: Long

Entry: 1.16360

Take Profit: 1.17370

Stop Loss: 1.15750

Support: 1.16360 / 1.15750 / 1.15190

Resistance: 1.17100 / 1.17370 / 1.18200

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Jason

Analysts

I have an in-depth study of fundamentals, especiaslly for the US dollar market. I'm good at short and medium term trading by virtue of my profound financial theoretical knowledge and extensive practical experience.

Rank

Articless

451

Win Rate

42.81%

P/L Ratio

1.02

Focus on

USDX, EURUSD, XAUUSD

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