The Fed Hikes Rate, Core PCE May Be the Key for Future Moves
Triple Bottom Produces the Expected Results. What’s Next?
Last Wednesday the Federal Reserve raised the interest rate by 25 basis points, a decision that had been widely anticipated by the market, with an 81% chance of a hike being priced in beforehand. The market’s year-end target rate fell from 4.36% to 4.26% following the decision. The Fed statement contained no reference to “ongoing increases” in rates. Can we safely assume that this was the last hike of 2023? The Core PCE Price Index that’s coming out later in the week will surely shed some light on the matter.
The US Dollar initially weakened when the rate was announced and during Fed Chair Powell’s press conference. However, soon after the drop, the greenback came back and erased all losses and even advanced against its peers.
In terms of the US banking system, the Federal Deposit Insurance Corporation (FDIC) announced on its website that the “17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023.” Good news for the clients of the SVB and also a development that will help alleviate some worries.
Key Data for the Week Ahead
The main event of the week will be the release of the Core PCE Price Index, scheduled for Friday at 12:30 pm GMT. This is said to be the Fed’s preferred inflation gauge but the CPI is released about 10 days earlier and usually brings in the most attention. The expected change is 0.4%, while the previous was 0.6%.
Before the PCE announcement, traders will focus on the U.S. Consumer Confidence survey, scheduled for release Tuesday at 2:00 pm GMT. Thursday at 12:00 pm GMT the German Prelim CPI comes out, followed at 12:30 pm GMT by the U.S. Final GDP.
Technical Outlook – EUR/USD
Last week we talked about a triple bottom formed on 1.0500 support. This bullish pattern produced the expected outcome, generating a strong move north. However, after piercing through 1.0900, the pair returned below 1.0775 and is now testing the 50-day Moving Average.
If the bears can take the price below the Moving Average, we may see a stronger descent, possibly into the support at 1.0635 – 1.0600. On the other hand, if the pair bounces off the 50-day Moving Average, it will probably regain its bullish momentum and will be headed toward the resistance at 1.0900.
Inflation is still the main driver of prices, which makes Friday’s PCE release even more important. If nothing else, it will reveal another piece of the big puzzle which is EUR/USD.
