EUR/USD, USD/JPY, USD/CAD & AUD/USD’s Path Tied to US PCE

US DOLLAR FORECAST – EUR/USD, USD/JPY, USD/CAD, AUD/USD

• The U.S. dollar has rebounded recently, boosted by a hawkish repricing of the Fed’s path relative to what was expected earlier in the year
• The prospect of the FOMC starting to cut borrowing costs at its March meeting have also diminished, reinforcing the greenback’s recovery
• This week, all eyes will be on the U.S. PCE report

Most Read: US Dollar Forecast – EUR/USD, USD/CAD and AUD/USD. Where to Next?

The U.S. dollar, as measured by the DXY index, has staged a remarkable turnaround recently, supported by the significant rebound in U.S. Treasury yields on the back of a hawkish repricing of the Federal Reserve’s monetary policy outlook.

To provide context, as recently as last Friday Wall Street was forecasting nearly 160 basis points of interest rate cuts for the year, but these dovish expectations have since been scaled back, with markets now discounting only 124 basis points of easing for the highlighted period.

2024 FED FUNDS FUTURES CONTRACTS (IMPLIED YIELDS)

Source: TradingView

The prospect of the FOMC starting to lower borrowing costs at its March meeting has also diminished, falling from roughly 77% one week ago (January) to 46% today. This situation has undoubtedly contributed to the greenback’s positive performance against its top peers.

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Source: CME Group

With U.S. economic activity growing above trend, the labor market extremely tight and progress on disinflation stalled, it would not be surprising to see traders further reduce bets on how much policymakers will cut rates in 2024, especially if incoming data doesn’t cooperate.

We’ll have more clarity on the economy and consumer prices in the coming days when the U.S. Bureau of Economic Analysis unveils last month’s personal income and outlays numbers. That said, traders should pay attention to two things in the report: consumer spending growth and core PCE.

The screen capture below, sourced from DailyFX’s economic calendar, presents the consensus estimates for the upcoming release.

UPCOMING US DATA

Source: DailyFX Economic Calendar

Any results above consensus estimates could indicate that the U.S. economy continues to run hot and that it would be premature to ease the policy stance. This scenario could drive Treasury yields higher, reinforcing the U.S. dollar’s bullish reversal. Conversely, subdued numbers could validate easing expectations, putting the greenback back on a depreciating path.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD retreated earlier in the week but managed to hold above its 200-day simple moving average at 1.0840. To bolster sentiment toward the euro, it is crucial for this support zone to remain intact; failure to do so could result in a pullback towards 1.0770, followed by 1.0700.

On the flip side, if buying momentum returns and triggers a market turnaround, primary resistance is located in the 1.0910-1.0930 band. Sellers are expected to vigorously defend this technical ceiling; however, a successful breakout could expose the 1.1020 area.

EUR/USD TECHNICAL CHART

EUR/USD Chart Prepared Using TradingView

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USD/JPY TECHNICAL ANALYSIS

USD/JPY rallied earlier in the week, but its upward momentum diminished as the weekend approached when prices failed to clear resistance near 149.00, which resulted in a modest retracement from those levels. That said, if losses intensify in the upcoming days, support appears at 147.40, followed by 146.00.

On the flip side, if bulls regain market control and propel the pair above 149.00, there’s potential for a rally towards the psychological 150.00 mark. If historical patterns serve as a guide, USD/JPY could be rejected from this area on a retest; however, a breakout could set the stage for a move toward 150.90.

USD/JPY TECHNICAL CHART

USD/JPY Chart Created Using TradingView

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USD/CAD TECHNICAL ANALYSIS

USD/CAD showed strong performance early in the week but took a sharp turn to the downside, losing its 200-day simple moving average heading into the weekend. This pullback followed an unsuccessful attempt to overtake trendline resistance and a key Fibonacci level near 1.3540.

If the bearish reversal gains momentum in the trading sessions ahead, initial support is expected at 1.3385, followed by 1.3355. On the other hand, if bulls stage a comeback and drive the pair higher, resistance is seen at 1.3480. With further strength, attention will be on 1.3510.

USD/CAD TECHNICAL CHART

USD/CAD Chart Created Using TradingView

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AUD/USD TECHNICAL ANALYSIS

AUD/USD lost ground from late December through early this week, but has bounced off technical support at 0.6525, allowing prices to push past a key ceiling ranging from 0.6570 to 0.6580. Should the recovery gather strength in the coming sessions, initial resistance lies at 0.6650, followed by 0.6700.

Conversely, if sellers reappear and drive the pair below 0.6580/0.6570, the next area likely to offer technical support appears at 0.6525, which corresponds to the 100-day simple moving average. On further weakness, the focus will be on 0.6500, the 61.8% Fib retracement of the October/December rally.

AUD/USD TECHNICAL CHART

AUD/USD Chart Created Using TradingView