Today’s report: US core PCE stands out on Friday calendar
As we come into the weekly close, the story is a story of the market continuing to reprice Fed expectations, putting the pivot trade to rest and coming to terms with the fact that higher for longer is still very much a reality.
Wake-up call
- record CPI
- BOE Tenreyro
- Ueda
- Aussie capex
- manufacturing sales
- RBNZ decision
- Inflation headache
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Bond Yields are Jumping at Federal Reserve Phantom Shadows, M. Ashworth, Bloomberg (February 22, 2023)
- Multi-Club Ownership is Rising Fast...But Not Everyone's a Fan, J. Noble, Financial Times (February 23, 2023)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The Euro recovery has finally run back above meaningful previous support turned resistance at 1.0635. The December 2022 close above this level further encourages the recovery outlook and makes a stronger case for the formation of a longer-term bottom. Any setbacks should now be well supported ahead of 1.0500. Next major resistance at 1.1185.EURUSD – fundamental overview
The US Dollar has been strong across the board as the market repriced Fed expectations. Having said that, the Euro has held up relatively well, getting a boost from a Eurozone core CPI read that hit a fresh record high of 5.3%. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.EURUSD - Technical charts in detail
GBPUSD – technical overview
Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The recent weekly close back above the September high at 1.1739 strengthens this prospect. Any setbacks should now be well supported ahead of 1.1500. Next key resistance comes in at 1.2668.GBPUSD – fundamental overview
There hasn't been much to report out of the UK in recent sessions, with only an improvement in UK CBI reads worth mention. As such, most of the price action here has been the Pound falling victim to broad based US Dollar demand on a repricing of Fed expectations. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.USDJPY – technical overview
The major pair has been in the throes of a long overdue correction that was waiting to play out after a parabolic run to the topside to multi-year highs. At this stage, the correction could be getting close to having played out fully, with the market finally approaching critical previous resistance turned support in the 125.00 area.USDJPY – fundamental overview
The Yen remains very well offered into dips with no signs of any major shift in policy when incoming Governor Ueda takes over. Ueda said the Bank would stop its massive buying of bonds if it reached its target of stable 2% inflation, but added it would still take time to reach that goal. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.AUDUSD – technical overview
There are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. The recent weekly close back above previous support now turned resistance at 0.6682 strengthens the outlook for a bullish structural shift. Next key resistance comes in at 0.7284.AUDUSD – fundamental overview
The Australian Dollar has suffered this week from the repricing of Fed expectations and risk off flow in global markets. At the same time, we have seen some demand into the latest dip, perhaps on the back of Thursday's stronger than expected Aussie capex print. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.USDCAD – technical overview
A recent surge back above 1.3000 signals an end to a period of bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.USDCAD – fundamental overview
A rebound in the Canada CFIB business barometer and solid Canada payrolls helped to slow the pace of Canadian Dollar declines from a broad repricing in Fed rate expectations. Thursday's recovery in the price of oil was also a prop for the Loonie. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.NZDUSD – technical overview
Overall pressure remains on the downside with risk for the current recovery rally to stall out and form a lower top for the next major downside extension. A break back above 0.6577 would be required to take the immediate pressure off the downside.NZDUSD – fundamental overview
The New Zealand Dollar has been under some pressure as the market reprices Fed rate expectations. At the same time, this week's 50 basis point rate hike from the RBNZ and accompanying hawkish tone have also helped to offset some of the weakness. Key standouts on Friday’s calendar come from German consumer confidence and GDP reads, Canada manufacturing and wholesale sales, and US data in the form of personal income, personal spending, core PCE, new home sales, and Michigan sentiment. We also get central bank speak from Fed’s Mester and Jefferson, along with BOE Tenreyro.US SPX 500 – technical overview
Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close back above 4300 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in at 3492.US SPX 500 – fundamental overview
We've finally reached a point in the cycle where the Fed recognizes unanchored inflation expectations pose a greater downside risk than over-tightening. This is significant, as it means less investor friendly monetary policy that risks potential recession in the months ahead. Overall, we expect inflation to continue to be a problem in H1 2023 that results in downside pressure into rallies.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1600 on a monthly close basis ahead of the next major upside extension. The recent break back above 1808 strengthens the bullish outlook. Next major resistance comes in at 2000.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about inflation risk and a less upbeat global growth outlook. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.