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EUR/USD edges higher ahead of key US PCE report

Following on from the previous update, noting the potential pitfalls to trading the USD/JPY over the PCE data release, here are some thoughts on the wider implications of an outside data release. What we do not want to see today is PCE data that pretty much reflects the market forecasts. That could end up with little or no reaction in the dollar ahead of the weekend. So, the suggestion here; is that anything above 3% in the core annualised rate should see the Dollar jump higher, whereas anything significantly below 2.8% will deliver an adverse reaction. The previous update noted the caveats to trading the USD/JPY from a buy side perspective, but of course the Japanese officials have rather given a green light to fall back in the USD/JPY, if the PCE data is markedly weaker than forecast. One thing is for sure; whilst they moan about FX volatility, but they will not intervene right now to support the USD/JPY if it lurches lower. So, if the data is well above consensus, it might be better to trade the EUR/USD or the GBP/USD. Of course both are at low levels right now, so it might take a really strong number to see them fall further, as a moderate increase could be priced in around the current levels, especially on the EUR/USD. In terms of downside levels, there is little this side of the February 14 low at 1.0695. A break there opens a path towards 1.0600. On the topside we have the 200 day moving average still guarding that, now at 1.0836. The EUR/USD is currently trading higher, from an earlier low at 1.0768, just now at 1.0788
 

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