EURUSD downtrend to its lows

EURUSD has declined sharply ahead of PCE

The EURUSD pair continues to fall. The market expects Friday’s inflation data to decrease, which supports the US dollar. A resurgence in selling pressure on the US Dollar (USD) led the USD Index (DXY) to relinquish some of its recent gains above the 106.00 level and shift its focus back to the downside. Consequently, EUR/USD stabilized and climbed back above the 1.0700 mark on Thursday. The euro (EUR) managed to set aside some of the recent negative sentiment amidst reduced political concerns in France ahead of the June 30 snap elections. US Treasury yields also saw a minor decline, contributing to the dollar's brief retreat. However, market dynamics are shifting as focus intensifies on today's economic releases, including the Core PCE data, personal income and expenditures, and the University of Michigan's May consumer sentiment index.

EURUSD has bounced off amid French elections

Before the second round of voting in the French elections on July 7, investors are optimistic that mainstream parties will strategically prevent the far-right National Rally from gaining an absolute majority. This optimism has been bolstered by the highest voter turnout since 1986 during the first round, and the presence of multiple candidates allows for tactical voting alliances between the left-wing alliance and Macron. As negotiations deadline looms tonight, the most likely outcome appears to be a hung parliament, potentially hindering consensus on spending cuts—a concern initially troubling investors. Nevertheless, the possibility of Le Pen's National Rally governing France remains a significant risk.

The euro lacks a clear directional bias currently, which complicates the technical EUR/USD forecast like many other currency pairs at present. However, this situation may shift once election uncertainty subsides, and upcoming US economic data releases could establish the market tone for the rest of the month.

What is the US PCE data and why is it important?

Personal consumption expenditures (PCE), also known as consumer spending, is a measure of the spending on goods and services by people of the United States. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States.

1. influencing decisions
   
   Economists and analysts use PCE to forecast future spending and economic growth trends. It provides businesses with valuable insights into consumer demand for their products and services, influencing decisions related to hiring and investment.
   
2. monitoring economy
   
   The Bureau of Economic Analysis (BEA) uses consumer spending data to compute the PCE Price Index, a key measure of inflation. Thus, measuring and monitoring PCE is crucial for understanding economic conditions and inflationary pressures.
   
3. analyzing economy
   
   The reason many consider it the Fed’s preferred inflation gauge is complex. Unlike the CPI it is a much less volatile index. There are many other reasons such as the flexible weighting and comprehensive coverage while not forgetting healthcare costs which are a big part of the US economy as well. Thus, it is the Core PCE number that is frequently highlighted in economic analyses to understand long-term inflation trends without the noise from the more volatile food and energy sectors. As with most things markets (whether right or wrong) related, a longer-term view is always perceived as more reliable.

Looking at the relationship between the US Dollar and the PCE data is definitely a worthwhile exercise. The PCE index is seen as a good predictor as to the path of both monetary policy and the US Dollar. Look at the chart below which compares the USD Index (blue line), Core PCE number (red line) and the US Interest rate (green line). If US PCE data continues to decline, market participants are likely to adjust their expectations for rate cuts. This could theoretically weaken the US Dollar. Conversely, an increase in the PCE number is likely to strengthen the Dollar. Market consensus for tomorrow's release sees both the CORE and headline number at 2.6%.

The value and forecast of US dollar

The value of US dollar

Issued by the Federal Reserve (Fed), the US dollar is the official currency of the United States. It is the number one most traded currency globally, accounting for a daily average volume of US$2.9 trillion.

• The US dollar gains its popularity because the US is the world’s largest economy and a powerhouse in international trade.
• The value of the US dollar is primarily shaped by the economic performance of the United States and global demand for commodities.
• The US dollar is the world’s primary ‘reserve currency’, held by central and commercial banks for the purposes of international transactions and investment.
• Fluctuations in economic performance of other countries that either officially use the US dollar or adopt it as their de facto currency, such as Ecuador, Panama, and El Salvador.

The forecast of US dollar

Apparently, the dollar’s renewed strength is on the back of higher perceived chances of Donald Trump winning the US presidency race. The debate between former president Donald Trump and president Joe Biden may be the first glimpse of what market participants can expect from the US Dollar when the US elections come around later in the year. A victory in the debate for Trump should strengthen the US Dollar as Trump is seen as more favorable to the US Dollar at this stage. Yen plunges to 38-year low vs US dollar, US Dollar continues to see strength.

The dollar index steadied around 105 on Tuesday as investors avoided making big bets ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress. Markets also braced for key US inflation data this week that could shed light on the path for interest rates. Still, the index stayed close to over three-week lows after losing nearly 1% last week as soft US economic data reinforced expectations that the Fed will have to lower rates soon. Data last week showed that the US unemployment rate rose to a 2-½-year high of 4.1%, services activity unexpectedly contracted and private employment growth missed forecasts.

What are the most traded currencies in the world?

The foreign exchange (forex) market is the largest global market, with daily trading volumes averaging around $6.6 trillion. This article explores the top 10 most traded currencies, collectively accounting for nearly 90% of all forex transactions.

1. US dollar (USD)
2. Euro (EUR)
3. Japanese yen (JPY)
4. Pound sterling (GBP)
5. Australian dollar (AUD)
6. Canadian dollar (CAD)
7. Swiss franc (CHF)
8. Chinese renminbi (CNH)
9. Hong Kong dollar (HKD)
10. New Zealand dollar (NZD)

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.