• The Euro remains steady at mid-term highs as US inflation and spending data disappoint.
  • US PCE inflation eases beyond expectations and cements hopes of Fed cuts in early 2025.
  • Better-than-expected US Durable Goods Orders are keeping the Greenback from a deeper depreciation.

The Euro (EUR) is trading higher after an initial reversal following mixed US data. The pair remains steady at fresh four-month highs above 1.1010 at Friday’s United States (US) session opening, with the Dollar weighed by the weak US Personal Consumption Expenditures (PCE) Prices Index and Personal Spending data.

The Pair spiked lower immediately after the data release, as the better-than-expected US Durable Goods orders report provided an initial boost to the Dollar. The immediate reaction, however, lost momentum afterward, as the market acknowledged that these figures increase the odds for Federal Reserve (Fed) cuts in early 2024.

Data released on Thursday showed that the US economy grew at a slower pace than previously estimated in the third quarter. These figures came accompanied by weaker manufacturing data and signs of easing inflation, which are consistent with the theory of a soft landing ahead.

Daily digest market movers: US PCE Inflation and Spending data adds pressure on the USDollar

  • US PCE Prices Index contracted against expectations in November, with the year-on-year rate easing to 2.6%, below the 3.8% market consensus, from 3% in the previous month.
  • The Core PCE increased 0.1%, steady from the previous month, and 3.2% on the year, following a 3.5% reading in October. The market had anticipated 0.2% and 3. 3% readings respectively
  • US Personal Spending grew at a 0.2% pace from 0.1% in October, below the consensus 0.3% reading.
  • On the positive side, US Durable Goods Orders beat expectations with a 5.4% increase in November, following a 5.1% decline in October. Market analysts expected a more moderate 2.2% growth.
  • On Thursday, US Q3 GDP was revised to a 4.9% annualized growth from the previous 5.2% estimate.
  • The Philadelphia Fed Manufacturing index dropped to -10.5 in December from -5.9 in November; the market expected a moderate improvement to -3.
  • Investors are pricing a nearly 75% chance of a quarter-point rate cut in March and 150 bps cuts in 2024, according to the CME Group Fed Watch Tool.

Technical Analysis: Euro breaks 1.1010 resistance, eyes 1.1070

Euro bulls have gathered strength on Friday’s European session, to break above November and December’s peak, at 1.1010. The Dollar Index (DXY) dipped to fresh lows and after US Personal Spending and PCE Prices Index figures confirmed the disinflationary trend.

A confirmation above 1.1010 would shift bulls’ focus towards the early August high at 1.1070, and the July 24 and 27 peak,  at 1.1150.

To the downside, support levels are 1.0930 ahead of a key support area above the 4-hour 100 Simple Moving Average (SMA) at 1.0870. Below here, bearish pressure might increase, with the early December lows at 1.0730 coming into play.

Euro price this week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.

USD -1.19%-0.54%-0.79%-1.60%-0.17%-1.47%-1.97%
EUR1.18% 0.66%0.40%-0.40%1.02%-0.27%-0.76%
GBP0.53%-0.66% -0.26%-1.06%0.37%-0.94%-1.42%
CAD0.79%-0.40%0.25% -0.80%0.64%-0.67%-1.17%
AUD1.57%0.40%1.06%0.80% 1.41%0.14%-0.36%
JPY0.15%-1.02%-0.37%-0.63%-1.43% -1.30%-1.80%
NZD1.45%0.27%0.92%0.68%-0.13%1.31% -0.49%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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