EUR/USD breaks above 1.0880 after US Core PCE as USD slides

• The US Core PCE annual rate slowed from 4.7% to 4.6% in May.
• The US dollar weakened modestly after the report.
• The EUR/USD turned positive for the day after rebounding from two-week lows.

The EUR/USD rebounded further after US consumer inflation data and climbed above 1.0880, hitting fresh daily highs, boosted by a weaker US dollar. The greenback pulled back after the report, and commodities and US equities futures rose.

The US Bureau of Economic Analysis reported on Friday that inflation, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, fell to 3.8% YoY in May from 4.3% in April, below the market consensus of 4.6%. The Fed's preferred measure, the Core PCE, also fell from 4.7% to 4.6%.

As a result of the report, the US Dollar weakened. The DXY retreated from weekly highs above 103.50 towards 103.00, and US Treasury yields dropped back to neutral territory for the day. The US 10-year yield fell from three-month highs at 3.89% to 3.84%.

Later on Friday, the University of Michigan releases the final estimate for consumer sentiment, and also the Chicago PMI is due.

EUR/USD holding above the 20-day SMA

The EUR/USD bottomed on Friday at 1.0835, the lowest level since June 15. It started to rebound and after US data accelerated towards 1.0900, boosted by a weak US dollar and risk appetite. The combination is favorable for the upside.

The rebound in EUR/USD took place from near the 20-day Simple Moving Average (SMA) line at 1.0855. A daily close below that level could point to weakness ahead for the Euro from a technical perspective. On the upside, the next areas to watch are 1.0900 and then the 20-period SMA in the 4-hour chart, which is waiting at 1.0910. A recovery above that level would strengthen the short-term outlook for the Euro.

Technical levels