Fed’s Rate Cut Priced In – PCE to Set Year-End Tone
EUR/USD Faces Resistance; Downtrend Likely to Continue
Inflation remains a lingering issue in the United States, staying just above the Fed’s 2.0% target. Last week’s PPI numbers came out above expectations, showing that producer prices are still increasing, which means that consumers will soon have to pay extra charges.
The stubborn inflation raises some questions about the path of the interest rate, with some saying that the rate cuts may come to an end sooner than expected. The general vibe seems to favour a cut this week, followed by a pause. A 25 bps cut is almost fully priced in, according to CME Group’s FedWatch tool which shows a staggering 96% probability for a cut. However, the same tool forecasts just two cuts in 2025.
Economic Calendar Highlights
Monday is filled with PMI releases, with the European and British Manufacturing and Services PMIs released early in the day and the U.S. indicators coming at 2:45 pm GMT. The Purchasing Managers’ Index is a survey that tracks the opinion of purchasing managers from the respective sector regarding the overall business conditions. It’s not considered a high-impact indicator but it shouldn’t be overlooked either.
The U.S. Retail Sales will be released Tuesday at 1:30 pm GMT, together with the Core version. Both versions are expected to increase, which is indicative of a strong economy.
Wednesday is interest rate day: the Fed will more than likely announce a 25-bps rate cut from the current 4.75%. The rate will be announced at 7:00 pm GMT and will be followed by Fed Chair Powell’s press conference at 7:30 pm GMT.
The Bank of England (BoE) will announce the interest rate on Thursday at 12:00 pm GMT (no change expected) and the U.S. Final GDP will be released at 1:30 pm GMT.
The economic week will end with what may be the highest-impact indicator: the U.S. Core PCE Price Index, scheduled for Friday at 1:30 pm GMT. This is the Fed’s preferred inflation gauge and can strongly affect the path of the interest rate going into 2025. The PCE is expected to show a 0.2% change compared to the previous 0.3%.
Technical Outlook – EUR/USD
After the bounce at 1.0350 support, the Euro bulls tried to stage a rally but failed to do so at 1.0600 resistance. The pair moved into this resistance several times, or came very close to it, which shows that it’s an important level, worth watching in the future.
Since the double top that was printed in late September, the pair established a downtrend and a trend line, which will act as resistance. Given the recent US Dollar strength, this downtrend is likely to continue, although currently, we are dealing with a level of uncertainty.
As long as the price stays below 1.0500, the next target is 1.0350. A bullish reversal has relatively low chances of happening because if the pair moves above 1.0500, it will encounter a confluence zone created by the trend line, the 50-day MA, and the resistance at 1.0600.
