Core PCE unlikely to sway Fed next week

The December Core PCE print was in-line with expectations. Therefore, markets remain comfortable with pricing in the 98% chance of a 25bps rate hike on Wednesday.


The Fed’s favorite measure of inflation, Core PCE, was released earlier today for December. The YoY print fell as expected to 4.4% from 4.7% in November.  This was the slowest increase in the inflation print in 14 months!  The headline PCE Index fell to 5% YoY vs 5.1% YoY expected and 5.5% YoY in November.  This was the lowest level since September 2021.  As a result of the “as expected” inflation data, markets are still confident that the FOMC will hike rates by 25bps when it meets on February 1st.  In addition to the inflation data, Personal Income for December was 0.2% MoM vs 0.2% MoM expected and 0.3% MoM in November.  Personal Spending fell to -0.2% MoM vs -0.1% MoM expected at -0.1% MoM in November. 

As a result of the in-line data, the US Dollar was little changed after the print.  As we have discussed in previous articles, EUR/USD bottomed on September 28th, 2022 at 0.9536 and has been moving higher since.  In mid-November, the pair began moving in a tight upward sloping channel, above the 50 Day Moving Average and horizontal resistance at 1.0350.  The pair is currently oscillating around the top trendline of the channel and forming an ascending wedge as EUR/USD moves into horizontal resistance from the highs of April 21st, 2022 near 1.0936.

EUR/USD Daily Chart

Source: Tradingview, Stone X

On a 240-minute timeframe, EUR/USD has recently broken below the ascending wedge that the pair has been in since mid-January.  The expectation on the break of an ascending wedge is that price will retrace 100% of the wedge. This would target 1.0766.  Price has plenty of room to fall to this level, as it acts as the first level of support.  Below there, price can fall to horizontal support at 1.0713, then a confluence of support at the 50-Day Moving Average and the bottom trendline of the upward sloping channel near 1.0615/1.0623. (See MA on daily timeframe.)  However, if the move below the wedge proves to be a false breakdown, first resistance is at Friday’s high of 1.0900.  Above there, price can move up to a confluence of resistance at the April 21st, 2022, highs and the top trendline of the ascending wedge, near 1.0936/1.0945.  If EUR/USD breaks higher, the next level of resistance isn’t until the highs from March 31st at 1.1185.

240 Minute EUR/USD Chart

Source: Tradingview, Stone X

The December Core PCE print was in-line with expectations. Therefore, markets remain comfortable with pricing in the 98% chance of a 25bps rate hike on Wednesday. However, watch the statement and press conference to see if the Fed is considering a pause or another rate hike of 25bps in March!

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account