Anticipated upside movement, targeting 1.0885. Driven by mixed US-EU economic data and upcoming PCE report. Key resistance at 1.0888, bullish engulfing pattern noted.

Bullish view

• Buy the EUR/USD pair and set a take-profit at 1.0885.
• Add a stop-loss at 1.0795.
• Timeline: 1-2 days.

Bearish view

• Set a sell-stop at 1.0825 and a take-profit at 1.0785.
• Add a stop-loss at 1.0900.

(Click on image to enlarge)

The EUR/USD exchange rate dropped and then bounced back after the mixed US and European economic numbers. After falling to its weekly low of 1.0795 on Wednesday, it rebounded to a high of 1.0850 ahead of another set of US and European economic numbers.

US PCE report ahead

The EUR/USD pair rebounded after the US released the second estimate of Q4 GDP numbers. According to the Bureau of Economic Analysis (BEA), the American economy expanded by 3.2% in Q4, slightly lower than the first estimate of 3.3%. It had expanded by 4.9% in the previous quarter.

Real consumer spending rose by 3.0% while GDP sales rose by 3.5% during the quarter. These numbers mean that the economy did well in the final quarter of the year. However, there are signs that this growth will slow this year.

For example, a report published on Tuesday revealed that consumer confidence dipped sharply in February. Other figures like retail sales, durable goods orders, and industrial production also retreated.

The next important report from the US will be the upcoming PCE inflation figure, which is the Fed’s favorite inflation gauge. Economists polled by Reuters expect the data to show that the PCE fell to 2.4% in January from 2.6% in the previous month.

The core PCE figure is expected to have dropped from 2.9% to 2.8%. If these figures meet expectations, it will be a sign that the country’s inflation will move to the Fed’s target of 2.0%.

As such, falling PCE inflation and a slowing economy means that the Federal Reserve will likely start cutting interest rates later this year.

The other important data will come from Europe, where Germany will publish the preliminary February inflation figures. Economists expect the report to show that the headline CPI dropped to 2.6% in February from 2.9% in the previous month. Spain will also release its inflation report.

EUR/USD technical analysis

The EUR/USD pair retreated on Tuesday and then formed a bullish engulfing pattern, which is a popular reversal sign. It has remained slightly below the 38.2% Fibonacci Retracement point and is consolidating at the 25-period and 50-period Arnaud Legoux Moving Averages (ALMA).

The pair has also formed an inverse head and shoulders (H&S) pattern, which is a popular sign of a reversal. Therefore, there is a likelihood that the pair will continue rising ahead or after the US PCE report. If this happens, the next point to watch will be last week’s high of 1.0888.

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