Market update: US dollar 2024 - PCE impact on forex, EUR/USD, GBP/USD, USD/JPY analysis

Wall Street will be on edge this week ahead of a high-impact event on the US calendar on Friday: the release of core PCE data, the Fed’s preferred inflation indicator. This report is likely to amplify volatility and may alter sentiment, so traders should prepare for the possibility of wild price swings in order to better respond to sudden changes in market conditions.

January's core PCE is forecast to have increased by 0.4% compared to the previous month, resulting in a slight decline in the yearly reading from 2.9% to 2.7% - a minor yet encouraging directional adjustment. However, traders should not be caught off guard if official results surprise to the upside, mirroring the trends and patterns seen in the CPI and PPI surveys a couple of weeks ago.

Rate hike expectations and the dollar's 2024 rebound: navigating the shift in monetary policy

Sticky price pressures, coupled with robust job growth and reaccelerating wages, may prompt the FOMC to delay the start of its easing cycle until the second half of the year, and to deliver fewer cuts than anticipated. This scenario could shift interest rate expectations towards a more hawkish direction compared to their present outlook.

Higher interest rates for longer may keep US Treasury yields tilted upwards in the near term, establishing a fertile ground for the US dollar to build upon its 2024 recovery. With the greenback displaying a constructive bias, the euro, pound and, to a lesser extent, the Japanese yen may encounter challenges transitioning into March.

EUR/USD technical analysis

EUR/USD rebounded this past week, but failed to decisively recapture its 200-day simple moving average at 1.0825. It's imperative to closely track this indicator in the coming days, as a push above it may trigger a rally towards 1.0890. On further strength, attention will turn to 1.0950.

Alternatively, if the pair gets rejected downwards from its current position and heads lower, technical support fist appears at 1.0725, followed by 1.0700. Beyond this threshold, additional weakness could prompt a retracement towards 1.0650.

GBP/USD technical analysis

GBP/USD advanced during the week but failed to take out its 50-day simple moving average at 1.2680. Surpassing this technical obstacle could be a tough task for bulls, though a breakout might usher in a move towards trendline resistance at 1.2725. Above this barrier, all eyes will be on 1.2830.

In the scenario of sellers reasserting control and kickstarting a pullback, the first potential support area arises around the 1.2600 handle. Further losses past this juncture could pave the way for a decline towards trendline support and the 200-day simple moving average, located at 1.2570.

USD/JPY technical analysis

USD/JPY made further progress to the upside this week, coming within striking distance from breaching resistance at 150.85. Traders need to monitor this technical barrier carefully, as a successful breakout could energize buying momentum, potentially fueling a rally towards last year’s highs near 152.00.

On the flip side, if sellers unexpectedly reclaim dominance and spark a bearish reversal, the first technical floor to watch lies at 149.70 and 148.90 subsequently. Sustained losses beyond these key support levels could trigger a retreat towards the 100-day simple moving average in the vicinity of 147.50.

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