The risk‑off theme is being removed from the dollar, and the main driver remains concerns about the Fed raising rates from September onward. Still, could the market over‑react in its narrative? At 14:30 today we will receive the PCE and PCE Core spending inflation data that the Fed is still watching, although changes in methodology are already visible on the horizon (we will learn them at the end of the year when the special teams appointed by Kevin Warsh finish their work). In May, PCE could have accelerated to 4.0% YoY, and the core PCE to 3.4% YoY – these are estimates.
The market reaction will be crucial, as today’s release fits a pattern based on a psychological element: earlier discounting of certain facts. Investors had basically been waiting for PCE for several days, and that was the basis of the dollar’s bullish narrative. The question is whether even data well above forecasts (unlikely) could strengthen it? The pressure to realize gains will be significant, especially since the deflationary factor for the coming months is falling oil (WTI below $70 per barrel).
Currency statistics on Thursday morning show a mixed picture. The pound gained (though yesterday support was breached at GBPUSD 1.3158), as did the Swedish krona (global sentiment improvement), and the New Zealand dollar (expectations of a series of rate hikes this year).
The Australian dollar also reacted after better labor market data (though it was later muted). The market will also watch the yen, not just in the context of intervention; a hawkish BOJ member (Tamura) called for further rate hikes.
Is EURUSD looking for a bottom?
The dollar has slowed gains across the broad market. Will today’s US PCE Core data at 14:30 become a catalyst for profit taking and a dollar correction?
Technically, yesterday’s EURUSD trough at 1.1324 does not align with significant support we can identify at 1.1275.
This may suggest that even with a stronger EURUSD rebound, we did not yet hit a true bottom yesterday. Resistance can be located at 1.1410 and further at 1.1442. However, it should be noted that a clearer shift in market narrative around the Fed will require June labor market or inflation data, which we will learn in the first two weeks of July, and the key will be the FOMC meeting scheduled for July 29.
Daily EURUSD chart
