May’s US Core PCE rates in focus

The USD edged lower yesterday against its counterparts yet recovered the losses during today’s Asian session, implying a relative stability. On a fundamental level, we note that the US Presidential debate passed largely unnoticed by the markets, despite a slight spike of the USD at the time. Worries for the ability of incumbent President Biden to continue with another four-year term are deepening, given his performance at the debate, which could play a key role in contested states. Today we highlight the release of the US Core PCE price index for May. Should the rates fail to slow down or even accelerate we may see the USD gaining ground against its counterparts, as such rates would imply stubborn inflationary pressures in the US economy and probably could harden the stance of the Fed to keep rates high for longer. It’s characteristic of Fed policymaker’s hesitation to start cutting rates, that Fed Board Governor Bowman stated yesterday that she is still not ready to support a central bank rate cut with inflation pressures still elevated.

USD/JPY continued to rise yesterday using the 160.35 (S1) as a platform of support to rise further. We tend to maintain our bullish outlook given that the upward trendline guiding it remains intact. Yet at the same time we stress our warnings that the pair may be at overbought levels and ripe for a correction lower. Also at a fundamental level, we highlight the possibility of a market intervention operation by Japan to the Yen’s rescue. Should the bulls maintain control over the pair, we set as the next possible target the 163.00 (R1) resistance line. Should the bears take over, we may see USD/JPY breaking the 160.35 (S1) support line and taking aim of the 157.75 (S2) support level.

Across the Atlantic, we note that the final UK GDP rates for Q1, came in slightly improved if compared to the preliminary release and provided some slight support for the sterling. The release highlighted that the macroeconomic outlook of the UK seems to be improving, fading away any market worries for a recession in the UK economy. Pound traders are currently more focused on fundamentals as the UK elections on the 4th of July are nearing and the Labour Party is leading the polls by a wide margin, which tends to foreshadow a shift in Government highlighting a degree of uncertainty for what lies ahead for the UK.

GBP/USD edged a bit higher yesterday after nearing the 1.2600 (S1) support line. We tend to maintain a bearish outlook for the pair as long as the pair remains below the downward trendline guiding it since the 12 of June. Should the selling interest be renewed we may see the pair breaking the 1.2600 (S1) support line and aiming for the 1.2480 (S2) support level. For a bullish outlook we would require the pair to break the prementioned downward trendline in a first signal that the downward motion has been interrupted and continue to break the 1.2760 (R1) resistance line, which would open the gates for the 1.2890 (R2) level.

Other highlights for the day

Today in the European session we note the release of France’s preliminary HICP rates for June, Switzerland’s KOF indicator for June and the Czech Republic’s revised GDP rate for Q1, while Richmond Fed President Barkin speaks. In the American session, we get from the US the consumption rate, the PCE and Core PCE rates for May, June’s final University of Michigan consumer sentiment and Canada’s April GDP rates, while Federal Board Governor Bowman is scheduled to speak. On Sunday we note the release of China’s NBS PMI figures for June, while on Monday’s Asian session, we get Japan’s Tankan indexes for Q2 and China’s Caixin manufacturing PMI figure for June. On a fundamental level, we highlight the 1^st round of the French legislative elections on Monday. Polls currently imply the far right National Rally gets around 36% of the votes with the far-left New Popular Front following with 28.5%. Hence market worries tend to intensify, as French voters tend to be polarised setting an unpleasant dilemma and we may see an intense market reaction on EUR pairs and French stock markets at Monday’s opening.