US PCE Inflation Report Preview & Market Update
Market Overview
The U.S. Markets are navigating through significant economic and geopolitical developments. President Trump’s administration has announced a 25% tariff on auto imports starting April 3, but parts for U.S.-made vehicles are exempt. This decision has drawn immediate global reactions. Canada’s Prime Minister Mark Carney has pledged retaliatory trade actions, while Mexico’s President Claudia Sheinbaum has promised a comprehensive response on the same date. Europe, led by French President Emmanuel Macron, has vowed reciprocal measures, signaling an increase in global trade tensions. Meanwhile, China has filed a formal WTO lawsuit against the U.S. over the new tariffs, adding another dimension to the escalating trade disputes.
Fundamentally, the U.S. The economy showed some resilience, as revised fourth-quarter GDP growth came in higher at 2.4%, exceeding the prior 2.3% estimate. Job markets stayed steady with initial jobless claims at 224K, better than the 225K estimate. However, the Federal Reserve expressed increasing worries about inflation and lowered economic growth forecasts, raising fears of stagflation.
Fundamental Factors
Monetary policy remains center-stage, with the Federal Open Market Committee (FOMC) deciding to hold rates steady within the 4.25%-4.50% range. However, signaling a potential 50 basis point rate cut by the end of 2025, the Fed adjusted its long-term projections. The median PCE inflation forecast is now 2.8% (up from 2.5%), while the core PCE projection is 1.70% (down from 2.1%). This indicates rising inflation risks amid slowing growth.
The focus is now on the Personal Consumption Expenditures (PCE) inflation report, an important indicator for the Federal Reserve. Current predictions expect the Fed’s preferred inflation measure to rise by 2.7% year-over-year (YoY) in February, slightly higher than January’s 2.6% increase.
A higher PCE reading could strengthen the U.S. Dollar, which may lead to a more prolonged hawkish stance from the Fed. Conversely, a lower-than-expected reading could signal rate cuts, weakening the dollar and boosting risk-on sentiment in equities. The EUR/USD pair will likely be a key focus due to its sensitivity to dollar reactions.
Technical Analysis
On the EUR/USD 30-minute chart, as of Friday, March 28th, the market has opened within the value area high (VAH) and value area low (VAL) of Thursday, March 27th. According to market profile principles, this indicates the pair is in a range, with the previous day’s VAH and VAL acting as key resistance and support levels. Notably, the 1.0800 level, which represents yesterday’s VAH, has been swept, along with the 1.0810 and 1.0820 levels, which are currently considered “single prints,” reflecting rapid downward rejections or rejection of higher prices. A breakout above yesterday’s VAH or below the VAL is crucial in determining the next directional move of the pair. With the month-end close approaching and key PCE news impacting price action, traders should closely monitor these levels for significant developments.
Conclusion
Trade policies and monetary developments are steering global markets, with a focus on the U.S. tariffs and the upcoming PCE inflation report. Heightened trade tensions and rising inflation risks, coupled with reduced growth expectations, add uncertainty to the economic outlook. Investors must closely watch economic data and geopolitical trends shaping 2025.
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