Trader insight: how Friday's PCE data could shake EUR/USD and Gold

The US PCE price index is due for release on Friday at 13:30 London time. According to the index, inflation was 6.83% in July 2022, and the latest reading showed it at 2.7%. The move to 2.7% followed a low of 2.4% in February 2024.
 

The move higher in recent months was unexpected by economists and has reduced the likelihood of an imminent rate cut in the US. At least one rate cut is expected before the end of the year, likely during the November or December rate meetings.
 

PCE Core inflation has remained stubbornly around 2.8% annually. At the start of the year, it was at 2.9%; in the four months since then, it has hovered around 2.8%. Core inflation has also been slightly higher than expected in the last two months.
 

This month, Core PCE inflation is expected to drop from 2.8% to 2.7%, while headline PCE should decline from 2.7% to 2.6%.
 

Market implications
 

For traders, the EUR/USD has been bearish in 64% of the last 12 PCE reports, with an average range of 45.31 pips in the four hours following the publication time. Cleaner price action is often found in more minor currencies like the USD/SEK, where the dollar has strengthened in 73% of the cases.
 

Markets to watch in case inflation is lower than expected
 

If inflation is weaker than expected, then one market to watch is gold. XAUUSD has been trading sideways for approximately 52 days. The longer-term trend is bullish, above $2,275, while the short-term trend is bearish, below Tuesday's high of $2,364. A soft inflation reading could lift the price above $2,364, aligning the short-term and longer-term trends.
 

The Dow Jones (US30) is another market to watch in case of a lower-than-expected inflation reading. The Dow Jones has fallen by roughly 5% from its most recent swing high, and the price was 2.21% from its April low at the time of writing, indicating a favourable risk-to-reward ratio for bullish traders.
 

Markets to watch in case inflation is higher than expected
 

USD/CAD has been stuck in a downward-sloping channel since April 19th. A trend line connects the April 16th high, the May 23rd high, and the May 30th high. The channel suggests that if the price trades above the May 24th high of $1.3743, the pair could gain 180 pips and reach $1.39. This favourable technical outlook and a stronger-than-expected US inflation figure could generate a breakout by aligning technical and fundamental factors.
 

XAUUSD is also noteworthy if inflation is higher than expected. Previously, we mentioned that the longer-term trend is bullish above $2,275, and gold would need to trade lower by roughly $60 to reach this level at the time of writing. Interestingly, a breach of this significant $2,275 level would next target the primary level at $2,220, followed by $2,100 per ounce. Thus, a deeper correction could occur if US inflation is much stronger than anticipated.