Eyes on US Core PCE

Eyes on US Core PCE – The US stock market closed higher yesterday, with the Dow Jones up by 260 points, Nasdaq gaining 0.7%, and the S&P500 adding 0.4%.

Yesterday’s US economic releases had mixed outcomes. The Final GDP remained at 3%, while jobless claims declined after a revision of last week’s data. However, continuing claims continued to rise.

Today’s key economic data is the US Core PCE, which is expected to have mixed outcomes. The month-over-month (MoM) PCE is expected to rise by 0.1%, softer than the previous outcome of 0.4% in July. The year-over-year (YoY) is expected to slow down to 2.3% from 2.5%.

However, the main focus is on the Core PCE. The MoM is expected to rise by 0.2%, matching last month’s reading, while the YoY may increase to 2.7% from 2.6%, marking the second monthly increase after more than 15 months of consecutive slowing down.

Any disappointing outcome, such as a stable Core PCE YoY or a sudden decline, could increase the possibility of faster and larger rate cuts by the Federal Reserve. The Fed Funds Futures, despite yesterday’s mixed data, are still pricing in a 75 basis points rate cut between the Federal Reserve’s November and December meetings. November’s meeting now has a 48% chance of a 50-basis-point rate cut.

DXY stuck below 101.0

The US Dollar Index remains within a tight range, trading around 100.65, with solid support but also stuck below the 101.0 resistance area. The Time/Price method suggests that a notable move is imminent, especially since the time and the price are now equal on the daily chart.

The US Dollar’s technical indicators are slightly bullish, while the RSI remains below 50 and far from being oversold. This keeps the door open for further declines, as the technical indicators are not bullish enough for a trend change yet. Therefore, today’s economic releases may act as a catalyst, depending on any surprises they might hold.

Euro drops after French CPI slows more than estimated

German yields and the Euro fell after French inflation slowed more than expected, falling below 2% for the first time in more than three years.

The September preliminary French EU harmonized CPI eased to 1.5% y/y, versus a 1.9% estimate and 2.2% prior. EU harmonized inflation on a monthly basis fell 1.2%, also more than expected.

Inflation is likely to have fallen mainly due to lower contributions from energy, as noted by Bloomberg Economics before the data was released. The data reinforces the case for the ECB to quicken the pace of interest-rate cuts. Currently, the markets see about a 70% chance of another quarter-point cut on Oct. 17.

Yen rebound has legs in the short-term as positioning adjusts

Options suggest that the yen has room to run higher versus the dollar into Friday’s close, but headwinds remain over the medium-term.

Yen bears were caught wrong-footed by today’s leadership election, as the sharp fall in USD/JPY shows. One-week risk reversals rallied to 81 basis points, puts over calls, after trading close to parity before Japan’s ruling party picked Shigeru Ishiba as its next leader.

Political uncertainty led to some topside price action in the spot and options market earlier this week, but the main underlying factor supporting the greenback was BOJ’s Ueda dovish forward guidance. If the central bank sees no reason to further increase interest rates by year-end, a hawkish PM won’t be of much help when position rebalancing is complete.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

Disclaimer
This is a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. The information contained herein does not constitute a personal recommendation and does not consider your personal investment objectives, investment strategies, financial situation or needs. Squared Financial makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on a recommendation, forecast, or other information supplied by Squared Financial.

The information on this site is not intended for any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.