Dollar Selling May Spark EUR/USD Rally if PCE Report Disappoints
The EUR/USD pair experienced some relief on Friday as the dollar saw broad-based selling. This reprieve came after investors holding long positions had been experiencing a downtrend in the pair.
Investors are now hoping that Wednesday's U.S. August PCE report will align with signals from inflation rate markets, which suggest price growth is not spiraling out of control. These markets have been trending downward for two weeks and are currently sitting closer to the midpoint of their longer-term ranges.
The key data point to watch is August core PCE, which is estimated to increase to +0.3% from July's +0.2%. If the actual result comes in below estimates, U.S. interest rate investors may need to adjust their expectations for Fed rate hikes. This could cause the September 2027 SOFR futures price, a proxy for the Fed's terminal rate, to rally, while U.S. Treasury two-year yields fall.
A resulting slump in U.S. interest rates could trigger dollar selling, squeezing EUR/USD shorts and pushing the pair toward key short-term resistance near 1.1550, and possibly the 200-day moving average around 1.1620.