EUR/USD rebounds as Fed rate cut bets strengthen after PCE

• Core PCE inflation remains under 3%, boosting probability of Fed rate cuts to nearly 90% into year-end.
• Dovish Fed voices highlight fragile labor market, Barkin warns inflation and unemployment trends remain concerning.
• Euro steadies despite NATO-Russia tensions, with traders eyeing US jobs data and upcoming Eurozone inflation prints.

EUR/USD recovers on Friday as traders' confidence rises that the Federal Reserve would reduce interest rates after the release of the latest inflation report in the United States (US). At the time of writing, the pair trades at 1.1697 up 0.27%.

Euro eyes 1.1700 as softer US inflation fuels confidence in further monetary easing

The week ended in a recovery mode for the shared currency after the US Bureau of Economic Analysis (BEA) revealed that the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index was aligned with estimates, but shy of the 3% threshold.

After the announcement, bets that the Fed would reduce borrowing costs increased from 84% a day ago to 88%m revealed the Prime Market Terminal interest rate probability tool.

Federal Reserve officials crossed the wires. Fed Governor Michelle Bowman was dovish as she said that the labor market is fragile and should the conditions deteriorate, they would need to adjust policy at a faster pace.  Earlier Richmond's Fed Thomas Barkin said both inflation and unemployment are moving in the wrong direction, but the downside is limited.

In Europe, a scarce economic docket left traders adrift to geopolitics. Tensions in Europe seem to weigh on the Euro as NATO warned Russia that it is prepared to intercept Russian aircraft. According to Bloomberg, European officials privately told Russia they are ready to shoot down jets and view Russia's Estonia incursion as deliberate.

Next week, the US schedule will feature a flurry of Fed speakers, US ADP National Employment Change, the ISM Manufacturing PMI, Initial Jobless Claims and Nonfarm Payrolls for September.

Across the pond, the European schedule will feature Business Climate, Consumer Confidence, the Economic Sentiment Indicator, September inflation figures and a flurry of ECB speakers. Also, traders should be wary of Flash PMIs and German inflation and Retail Sales.

Daily market movers: Euro surges as US core PCE justifies Fed rate cut bets

• The US core Personal Consumption Expenditures (PCE) Price Index rose 2.9% YoY in August, matching forecasts and unchanged from July. Headline PCE edged up to 2.7% YoY from 2.6%, in line with projections.
• The University of Michigan's final September Consumer Sentiment reading came in weaker than expected at 55.1 versus 55.4 anticipated. Inflation expectations eased slightly, with the one-year outlook slipping to 4.7% from 4.8%, and the five-year view falling to 3.7% from 3.9%.
• On the trade front, President Donald Trump announced new tariffs: 100% on pharmaceuticals, 50% on kitchen cabinets, bathroom vanities, and related products, 40% on upholstered furniture, and 25% on heavy trucks.
• In Europe, the ECB's Consumer Expectations Survey showed households see inflation at 2.8% in one year. The five-year outlook ticked higher to 2.2% from 2.1%.

Technical outlook: EUR/USD recovers and meanders around 1.1700

EUR/USD ended the week on a lower note, yet it seems to have found its foot, at around 1.1650. After reaching the latter, the pair edged back towards 1.1700 but failed to end the day/week above that price level.

The Relative Strength Index (RSI) remains bearish. This, and EUR/USD failure at 1.1700, could clear the path for further downside.

The first support would be 1.1650, followed by 1.1600. If cleared, the next support would be the 100-day SMA At 1.1588. Conversely, if buyers reclaim 1.1700, the next resistance would be 1.1750 ahead of the 1.1800 mark.