Will the PCE move the needle?

The EUR/USD exchange rate remained in a tight range in thin trading as investors reacted to the relatively positive American economic data. It was trading at 1.0614, where it has been in the past few days. This price is a few points below this month’s high of 1.0732.

US GDP and consumer confidence data

The EUR/USD price was in a consolidation phase after a series of positive economic data from the United States. On Tuesday, data published by Conference Board showed that consumer confidence zoomed higher in December. It rose from 101 in November to 108 in December as economic expectations rose.

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Consumer confidence is an important economic data because of the role that spending plays in the economy. Consumers are the biggest constituents in the American economy. As such, highly confident ones tend to spend more, thus boosting the economy.

Additional data then showed that the American GDP expanded by 3.3% in the third-quarter. The previous two estimates showed that the economy grew by 2.9% in the quarter. This rebound happened after the economy contracted in the previous two straight quarters.

A week earlier, as we wrote here, data showed that the American consumer and producer inflation dropped in November. The headline consumer inflation data dropped to 7.3% in November after rising by 7.7% in the previous month. It remained above the Fed’s target of 2.0%.

Therefore, the spectacular numbers from the US mean that the Fed has more firepower to deploy. Analysts expect that it will hike interest rates by 0.50% in February followed by a smaller 25 basis point increase in March.

The next key forex news will be the upcoming American PCE data. The data, which is the Fed’s favourite inflation gauge, is expected to have dropped slightly in November.

EUR/USD forecast

The 4H chart reveals that the EUR to USD spot exchange rate has been in a slow upward trend in the past few months. Recently, it has been stuck near the lower side of the ascending channel shown in black. The pair has moved above the 25-day and 50-day moving averages. It has also formed a small descending channel that resembles a falling wedge pattern.

Therefore, the pair will likely have a bullish breakout in the coming days as buyers target the upper side of the channel at 1.0750. A drop below the lower side of the channel at 1.0573 will invalidate the bullish view.