USD

Core PCE: Previewing the planet’s new most important economic release

There could also be upside risks to the present week’s core PCE report as higher prices start to become psychologically entrenched…
You can’t get through the front page of any business newspaper without reading about the risks of rising inflation, which trend has only become more dramatic since last week’s hawkish surprise from the Federal Reserve System . With the financial institution essentially telegraphing that it’s looking to announce an idea for tapering asset purchases within the next few months, the market is laser-focused on the Fed’s preferred inflation measure: Core Personal Consumption Expenditures (PCE).

According to the Bureau of Economic Analysis, “the core PCE price level measures the costs paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.” Unlike the more widely-followed consumer price level (CPI) of inflation, core PCE measures price changes for all households and nonprofit institutions serving households, not just urban households, making a broader measure for the country as an entire .

Last month’s core PCE report came in at 0.7% m/m and three .1% y/y, marking the very best year-over-year rate in nearly 30 years. For Friday’s release, traders and economists expect a 0.6% m/m rise, which might raise the y/y rate of inflation to three .4%.

While most economists and therefore the majority of the Federal Reserve System still believe any increases in inflation are going to be transitory, that argument will become more tenuous if hotter-than-expected inflation readings still compile . Notably, this month’s University of Michigan Consumer Sentiment survey showed that buyers expect prices to rise 4.6% over subsequent year and three .0% on the average over subsequent five years, suggesting that there could also be upside risks to the present week’s core PCE report as higher prices start to become psychologically entrenched.

Technical view: EUR/USD

With investors depending on a widening policy divergence between the Fed and therefore the European financial institution , EUR/USD are going to be a pair worth watching closely round the core PCE report release. The world’s most widely-traded currency pair is trading higher on the week after dropping to a two-month low last week, but the recovery looks more sort of a counter-trend correction than a sustainable trend change at now .

As long as prices remain below previous-support-turned-resistance within the 1.20 zone and therefore the 4-hour RSI indicator remains in bearish territory (below 60), readers can view the present pattern as a bearish flag pattern, signaling a possible resumption of the recent downtrend with potential for a move to 1.1850 or 1.1800 within the coming days.

Is USD/JPY ready to break into near territory?

USD/JPY appears able to bust higher above the March highs of 110.97
In early June 2015, USD/JPY hit a high of 125.86. almost 1 year later, price had fallen to a coffee of 98.79! USD/JPY has been oscillating within that range since then, forming lower highs along the way. At the start of the pandemic in February and March 2020, USD/JPY tried to push above the downward sloping trendline from the highs but failed whenever . That is, until March of this year. In March, USD/JPY finally closed above the trendline. Price pulled back to retest the trendline and therefore the RSI moved from overbought conditions to neutral. Now, USD/JPY appears able to bust higher above the March highs of 110.97.

On a daily timeframe, USD/JPY had continued moving lower since the pandemic highs and eventually narrowed towards the apex of a descending wedge (green). It then formed a coffee at 102.59 on January 6th (price did not remove the spike low during the coronavirus volatility in March 2020). USD/JPY continued to maneuver higher (along with the US Dollar Index) and broke above the future weekly trendline (red). Price traded as high as 110.97 before correcting. Notice that the RSI had been overbought for two weeks before reaching those highs, a sign that USD/JPY may are ready for a pullback.

USD/JPY then pulled back to the 38.2% Fibonacci retracement level from the January 6th lows to the March 31st highs, near 107.73, however did not close below it. USD/JPY also remained above the long-term trendline from the weekly chart. Price has been drifting higher since and appears to be able to remove the 110.97 level from late March!

Everything you ought to realize the japanese Yen

On a 240-minute timeframe, USD/JPY has been moving higher along a trendline off the January 6th lows green line) and is testing the March 31st highs. If price moves above 110.97, subsequent resistance level isn’t until 112.22. which is that the high from February 2020 (see daily). Support is below at the upward sloping trendline near 109.85. Below there, price can fall to horizontal support near 108.16, before the April 23rd lows of 107.48.

Note that the BOJ meets on Friday. Revisions to forecasts are expected, however nothing market moving. Also still watch the parade of Fed speakers in the week for clues on when the Fed may announce tapering. As of the time of this writing, Fed Chairman Powell is speaking, however markets aren’t reacting to any of his comments.

US open: Futures edge higher ahead of Fed Powell’s testimony

After strong gains within the previous session, Wall Street is heading for a quietly positive start with most preferring to remain on the sidelines before Fed Powell’s testimony before Congress.
All eyes to Fed Powell

After solid gains within the previous session, US stocks are pointing to a mildly stronger start as investors weigh up the prospects of further economic process against inflation concerns. Whilst the Dow gained a powerful 1.8% within the previous session trading before Fed Powell’s testimony before Congress today is probably going to be subdued.

In pre-released remarks, Powell once more reassured those inflationary pressures are going to be transitory whilst also expressing optimism surrounding the outlook for the economy. These comments sound familiar but the6y come against a backdrop of a surprise hawkish shift within the Fed seen last week.

The Fed now expects 2 rate of interest hikes before the top of 2023.

Equities

Gamestop trades +8.4% pre-market after raising $1.1 billion in an offering of 5 million shares as the troubled computer game retailer cashes in on the surge in its stock price this year.

Torchlight Energy trades 4.1% higher pre-market, adding to 50% gains yesterday because it becomes the newest stock to catch the eye of retail investors.

Where next for the Nasdaq?

The Nasdaq trades above its 50 & 100 sma on the 4 hour chart. It also trades above its month old ascending trendline during a bullish trend. Aftter slipping briefly below the 50 sma within the previous session, the very fact that the Nasdaq has broken back above resistance at 14077 adds to the suggestion that there might be more upside to return . an opportunity above 14209 would bring fresh all time highs. Its worth noting the RSI bearish divergence could suggest that the move higher is running out of steam. 14077 offers support now and a move below 14000 could negate the near term uptrend.

The US Dollar is one the increase , clawing back a number of yesterday’s losses. US Dollar price movement has been volatile since the Fed’s hawkish surprise last week when it suggested that there might be two rate of interest rises in 2023. All eyes are now on Fed Powell for further clues on how transitory the spike in inflation could be .

GBP/USD is paring gains from the previous session. Sterling trades struggling despite the general public sector finances improving. Public sector net borrowing came in at £24.3 billion in May, down from £31.7 billion in April and better than the £26.1 billion forecast. The reopening of the economy means tax receipts have picked up, furlough number have declined and government spending on supporting the economy slowed slightly. Whilst this is often an improvement it’s still the second highest level of net borrowing in May since record began.

GBP/USD -0.3% at 1.3893

EUR/USD -0.2% at 1.1897

Oil eases lower on USD strength

Oil prices are edging lower on Tuesday after booking solid 2% gains within the previous session. Oil rallied following comments from the newly elected Iranian President which suggested that he could put the brakes on the US – Iranian nuclear talks. As a result, the prospect of the US lifting sanctions on Iranian oil and it flooding back to the market faded.

A strong demand outlook continues to under pin the worth of oil as economies reopening and travel picks up. However US Dollar strength is simply taking the sting off demand for the black gold.

API inventory data are going to be focused later after big draws on stocks piles were recorded last week.

US crude trades -0.7% at $72.56

Brent trades -0.6% at $73.73

Currency pair of the week: AUD/USD

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields.
The Federal Reserve Bank of Australia meets in the week and is predicted to go away rates unchanged at all-time lows of 0.10% and reiterate the monetary policy will remain accommodative until CPI is sustainable at their targeted level of 2%-3%. At their February meeting, the RBA said that they expected that point will are available 2024! However, RBA governor Lowe will likely need to address the recent rise in yields and therefore the central banks intervention. Last week, rates within the Australian 10-year bond rose 45bps! As a results of the rise in bond yields, the RBA had to intensify its buying of 3-year bonds. They bought an estimated A$3 billion on Thursday and A$1 billion in Wednesday (and rates still went higher). Today, the RBA announced they were buying A$4 billion of longer-dated bonds, double the standard size! New coronavirus cases have continued to drop by the country, with sporting event capacities increasing to 50% and a few dance clubs reopening. Vaccines distribution is starting. With life in Australia moving back towards normal, is there an opportunity the RBA will need to raise rates before expected? Comments from financial institution in the week are going to be closely monitored.

Federal Reserve Chairman Jerome Powell gave his semi-annual testimony to Congress on Monetary Policy. He noted that current inflation expectations were transitory which the recent rise in yields was unsustainable. He also said that the Fed will keep monetary policy in situ until inflation is above the Fed’s target of 2%-3% for a few time, and until maximum employment is achieved. Yields within the US 10-year Treasury bond rose last week with a disappointing 7-year auction on Thursday. However, they need drifted lower off the highs from near 1.60% to 1.44% as of the time of this writing. Powell is about to talk on Thursday on the US economy at the WSJ Jobs Summit. His comments are going to be closely monitored to ascertain if he addresses the recent rise in yields and if the Fed will adjust monetary policy. The US stimulus package passed within the House of Representatives on Friday evening, and now will head to the Senate. additionally , although concerns are moving to the forefront regarding the coronavirus variants within the US, Johnson and Johnson’s vaccine was approved for emergency use within the US and is now the 3rd vaccine available. consistent with Bloomberg’s vaccine tracker, 75.2 million doses are given within the US, roughly 22% of the population. If things return to normal at a faster pace than the Fed expects, it’s going to put the Fed during a bind as inflation expectations and interest rates will rise, pushing the US Dollar lower!

AUD/USD had been in an orderly trend higher since early November 2020, then paused in January, forming a flag pattern. The pair broke higher on February 9th and was advancing nicely, on its way towards its flag target near 0.8400. However, on Thursday last week a confluence of resistance halted the move. First, the pair reached the phycological round number resistance at 0.8000. It also reached the 161.8% Fibonacci extension from the highs of January 6th to the lows of February 2nd, near 0.7960. Finally, price reached a better high because the RSI made a lower high, in overbought conditions, which could also be a sign of a reversal may be near. As a result, price did reverse, forming a bearish engulfing pattern on the daily timeframe. Price continued lower aggressively lower on Friday as stops were taken out below horizonal support below 0.7820.

On a 240-minute timeframe, AUD/USD is holding the 61.8% Fibonacci retracement and horizontal support near 0.7733. Below there, price can fall back to February 2nd lows near 0.7561. Further horizontal support is near the December 21st, 2020 lows near 0.7459. Short-term horizontal resistance doesn’t cross until near 0.7900, then the highs from Thursday near 0.8010.

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields. The RBA meeting and comments for Fed Chairman Powell (and other Fed speakers this week) are going to be closely monitored for clues to any quite adjustment to monetary policy. additionally , if AUD/USD breaks near term support at today’s lows (actual low is 0.7692), price may continue lower.