Wall Street edges higher, USD lower before PCE data

Headlines

* US Q1 economic growth sees light revision higher

* US Treasury yields and dollar inch lower ahead of key inflation data

* US Core PCE figures expected to edge closer to Fed comfort zone

* Gold jumps on softer dollar and yields, Brent crude close to breaking higher

FX: USD sold off but clawed back losses into the close, after it looked to be breaking to the upside and challenging year-to-date highs. US data was mixed with durable goods weaker while the Q1 GDP number was revised a touch higher. Fed officials are sticking to the patient script with eyes firmly on US Core PCE data released today.

EUR found buyers after dipping to a seven-week low yesterday at 1.0666. This is initial support with 1.06 major support below. We get individual country inflation reports out today including France, Spain and Italy.

GBP found support aroundthe 50-day SMA at 1.2640. But this could be a temporary reprieve with next support at the midpoint of the April to June move at 1.2579.

USD/JPY traded in a narrow range, consolidating near its highs. Officials have made their displeasure about yen weakness known. Whether the moves are “excessive” which could warrant intervention rather than just “rapid” is the key question. April saw a 10 yen move from 150 to 160 in less than a month. But this move has been more moderate. Tokyo CPI will be watched as it is a precursor for national inflation figures.

AUD continues to range trade between just below 0.66 and around 0.67. Inflation earlier in the week struck a six-month high as yield spreads with USD traded their tightest since the start of the year. CAD traded around the 50-day SMA at 1.3686. Canda GDP is forecast to rise to 0.3% from flat.   

US Stocks: Equity indices made very marginal gains in relatively quiet trade. The S&P 500 added 0.09% to finish at 5,482. The Nasdaq 100 settled up 0.14% at 19,780. The Dow closed higher by 0.09% at 39,164. Amazon and Google made fresh highs while Nvidia lost just under 2% continuing its choppy recent price action. Amazon had hit $2 trillion in market value for the first time on Wednesday. Micron, the memory chipmaker, shed over 7% after an inline Q4 revenue forecast disappointed.

Asian stock futures are mixed. Asian stocks settled in the red with stronger yields and whippy tech not helping sentiment. The ASX 200 struggled again with real estate under pressure from yields and firmer inflation expectations.  The Nikkei 225 didn’t benefit from better than forecast retail sales. Focus turns to Tokyo CPI released today. The Hang Seng suffered with tech and consumer stocks lower, while the mainland was also softer.

Gold made up the prior day’s losses but remains under the 50-day SMA at $2338. The May low at $2277 is support. A weaker dollar and falling yields boosted gold bugs.

Day Ahead – US Core PCE

There is much hope that the important monthly core PCE number will print with a one-handle, similar to the core CPI print last week which came in at 0.163%. Hopefully we won’t have to worry too much about three decimal places. Both the most recent PPI and CPI figures eased. The Reuters consensus forecasts are for a 0.1% m/m from 0.2% in April, which means 2.6% y/y versus the prior 2.8%.  

Traders hope to cement their bets on two Fed rate cuts for this year. This is more than the June median dot plot of just one reduction seen by FOMC officials. It’s worth remembering that there are only two more Fed meetings before the November US Presidential election. Markets currently see around a 66% chance of an 18 September rate cut, with just a 10% chance of a 31 July move. It will also be worth watching consumption figures which is estimated at +0.3%.

Chart of the day  – Dollar Index pauses below 106

The index found support around 104 in early June after dipping below a long-term upward trendline from the low last year and the 200-day SMA. That now sits at 104.49. A major Fib (61.8%) of this year’s high/low move also acted as support at 104.26. Since then, prices have picked up and moved above that trendline again and above the 50-day SMA at 105.17. The April and May highs at 106.49/51 are targets for the bulls if PCE data comes in hotter than expected. Initial support is a minor Fib level at 105.25 if inflation figures come in cooler.

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