PCE Data Takes Center Stage; Setups on EUR/USD & GBP/USD

US DOLLAR FORECAST – EUR/USD & GBP/USD

• The U.S. dollar lacks directional conviction amid market caution ahead of a high-impact event on the U.S. calendar later this week
• Thursday’s core PCE data release will seize investors’ focus
• This article carefully examines the technical outlook for EUR/USD and GBP/USD

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The U.S. dollar was largely flat on Tuesday, moving between small gains and losses, but displaying limited volatility in a context of mixed U.S. Treasury yields. Traders appeared to exercise caution, and many remained on the sidelines ahead of a high-impact market event on Thursday: the release of the core PCE deflator, the Federal Reserve’s preferred inflation gauge.

January’s core PCE is seen rising 0.4% compared to December, bringing the annual reading down from 2.9% to 2.8%. While the small directional improvement in the annual rate would be welcome, it is crucial to note that the CPI and PPI figures for the same period were substantially higher than anticipated. This creates the risk of a similar surprise in the upcoming PCE report.

Another hot and sticky inflation print could force the FOMC to postpone the start of its rate-cutting phase to the second half of the year, sending interest rate expectations higher. The likelihood of a delayed easing cycle or less aggressive cuts than initially envisioned should exert upward pressure on bond yields, leading to a stronger U.S. dollar.

Shifting focus away from fundamental analysis, the next segment of this article will hone in on scrutinizing the technical outlook for two major FX pairs: EUR/USD and GBP/USD. Here, we’ll evaluate price action dynamics and identify critical levels that could serve as support or resistance over the next few trading sessions.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD edged lower on Tuesday but found stability above the 1.0835 area, where trendline support meets the 200-day moving average. Holding this technical zone is key for the bulls. A breakdown could trigger a pullback towards 1.0725, with 1.0700 being the next potential defense line.

On the flip side, if sentiment swings back in favor of buyers and prices resume their ascent, resistance emerges at 1.0890, near the 50-day simple moving average. Continued upside progress beyond this threshold could potentially fuel a rally towards 1.0950.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD rose modestly on Tuesday, consolidating above its 50-day simple moving average at 1.2680. If gains pick up pace over the coming sessions, trendline resistance at 1.2725 will be the first line of defense against a bullish attack. Above this ceiling, attention will turn to 1.2830.

In the scenario of sellers reasserting control and initiating a bearish reversal, support can be spotted at 1.2680 and 1.2600 thereafter. A deeper pullback beyond these levels could expose a short-term uptrend line and the 200-day simple moving average around 1.2580.

GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView