Dollar under pressure as PCE inflation slows and commodity currencies jump

The dollar remains largely under pressure today and should end up as the worst performer for the week. The PCE data offered some hope that inflation has finally overcome. Overall risk sentiment is stable as US equities may extend their rebound in the final session of the week. Treasury benchmark yields are also trading slightly lower. Today, buyers’ attention turned to commodity currencies, led by the Aussie. European majors are also slightly weaker with the yen.

Technically, the support at 1.2712 in USD/CAD is an immediate priority as WTI Crude also extends the rally. The break of 1.2712 will indicate that the rise from 1.2401 has been completed at 1.3075. More importantly, this came after the rejection by the long-term Fibonacci resistance at 1.3022. A deeper drop could be seen towards 1.2401, and increase the likelihood that the entire rebound from 1.2005 is complete. If that happened, it would be a bad sign for the greenback.

In Europe, at the time of writing, the FTSE is up 0.38%. The DAX is up 1.01%. The CAC is up 1.09%. Germany’s 10-year yield is down -0.051 to 0.945. Earlier in Asia, the Nikkei rose 0.66%. Hong Kong’s HSI rose 2.89%. China Shanghai SSE rose 0.23%. Japan’s 10-year JGB yield fell from -0.0053 to 0.230.

US PCE inflation slowed to 6.3% yoy, core PCE down to 4.9% yoy

Personal income in the United States rose 0.5% month-on-month, or $89.3 billion, in April, below expectations of 0.6% month-on-month. Personal spending rose 0.9% mom, or $152.3 billion, above expectations of 0.7% mom.

The PCE headline price index slowed from 6.6% yoy to 6.3% yoy, below expectations of 6.6% yoy. The Core PCE price index slowed from 5.2% YoY to 4.9% YoY, in line with expectations. Energy prices rose 30.4% year-on-year, while food prices rose 10.0% year-on-year.

Bundesbank Nagel: We have to move the first rates in July

In an interview with Der Spiegel, Bundesbank President Joachim Nagel said: “At our June meeting, we need to send a clear signal where we are going. From my current point of view, we then have to move the first rates in July and follow others in the second half.

Earlier this week, ECB President Christine Lagarde said: “We are most likely moving (deposit rate) into positive territory at the end of the third quarter… When you are no longer in (rate) negatives, you can be zero, you can be slightly above zero, that’s something we’ll determine based on our projections and… our forward guidance.

BoJ Kuroda: Prices won’t rise sustainably without wage hikes

BoJ Governor Haruhiko Kuroda today told parliament that core inflation (all items excluding fresh food) “is likely to remain around 2% for about 12 months” unless prices energy does not drop sharply.

However, he stressed that “prices will not rise in a sustainable and stable way unless accompanied by wage increases.” This is seen as an indication that the recent rise in inflation is not enough to drive the exit from ultra-loose monetary policy.

Also in Japan, Tokyo’s core CPI was unchanged at 1.9% yoy in May, below expectations of 2.0% yoy.

Retail sales in Australia rose 0.9% month-on-month in April, driven by higher food prices

Retail sales in Australia rose 0.9% m/m in April, slightly below expectations of 1.0% m/m. For the 12-month period, sales increased 9.6% year-over-year.

New South Wales was the only state or territory to register a decline, down -0.3%. Queensland recorded the largest increase in retail turnover, up 1.6%. Revenue also increased in Victoria (1.1%), Western Australia (2.2%), South Australia (1.4%), Tasmania (2.0%), Australian Capital Territory (0.5%) and in the Northern Territory (0.7%).

ABS said: “The strength of retail turnover is being driven by spending in the food industries. High food prices have combined with increased household spending over the April holiday period as more people travel, dine out and hold family gatherings.

EUR/USD mid-day outlook

Daily Pivots: (S1) 1.0685; (P) 1.0709 (R1) 1.0755; After…

The intraday bias on EUR/USD remains slightly bullish as the rebound from 1.0348 is underway. The firm break of the 55-day EMA (now at 1.0758) will then target the resistance at 1.0935. On the downside, however, the break of 1.641 minor support will return the bias to the downside to retest the 1.0348 low instead.

Overall focus remains on long-term support at 1.0339 (2017 low). The decisive break will resume the downtrend from 1.6039 (2008 high). The next target is a 61.8% projection of 1.3993 to 1.0339 from 1.2348 to 1.0090. However, a firm break of the 1.0805 support turned resistance will delay this bearish case and provide a medium-term corrective bounce first.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:30 JPY Tokyo CPI Core Y/Y May 1.90% 2.00% 1.90%
01:30 USD Retail sales M/M Apr 0.90% 1.00% 1.60%
08:00 USD Euro area M3 money supply Y/Y Apr 6.00% 6.30% 6.30%
12:30 USD Personal Income M/M Apr 0.40% 0.60% 0.50%
12:30 USD Personal expenses April 0.90% 0.70% 1.10% 1.40%
12:30 USD April PCE M/M Price Index 0.20% 0.80% 0.90%
12:30 USD PCE Price Index Y/Y Apr 6.30% 6.60% 6.60%
12:30 USD April PCE M/M Core Price Index 0.30% 0.40% 0.30%
12:30 USD Core PCE Price Index Y/Y Apr 4.90% 4.90% 5.20%
12:30 USD Goods trade balance (USD) Apr P -105.9B -114.8B -127.1B -125.9B
12:30 USD Wholesale inventories Apr P 2.10% 2.00% 2.30% 2.70%
14:00 USD Michigan Consumer Sentiment Index May F 59.1 59.1

Leave a Reply

%d bloggers like this: