July’s US Core PCE Price index in focus

The USD strengthened against its counterparts yesterday as the revised GDP rate for Q2 showed that the US economy grew at a faster pace than initially estimated. The release tended to enhance the Fed’s narrative for a possible soft landing and in turn may provide more confidence for the US economic outlook. Today we highlight the release of the US Core PCE price index for July, in the early American session. The release tends to gain on attention given that the indicator is the Fed’s Favorite inflation metric. The Core PCE Price Index is expected to accelerate slightly reaching 2.7% yoy if compared to June’s 2.6% yoy. If that’s the case we may see the USD being supported as the release could imply that inflationary pressures in the US economy remain present. We expect the release to increase volatility substantially for USD pairs should the actual rate deviate substantially from the initial prognosis.

North of the US border we note the release of Canada’s GDP rate for Q2. Besides the importance of the metric as such for the Canadian economy, the release gains on attention as next Wednesday BoC is to release its interest rate decision. The bank is widely expected to cut rates and a possible slowdown of the GDP rate could weigh on the Loonie as it may add more pressure on the bank to ease its monetary policy further in the coming months.

USD/CAD edged higher yesterday, remaining just above the 1.3460 (S1) support line, threatening the downward trendline guiding the pair since the 5 of August. We tend to maintain our bearish outlook for the pair as long as the prementioned downward trendline remains intact. Also we note that the RSI indicator remains near the reading of 30, implying the presence of a strong bearish sentiment among market participants for the pair. Should the bears maintain control over the pair, we may see the pair breaking the 1.3460 (S1) support line, thus paving the way for the 1.3335 (S2) support base. Should the bulls take over, we may see the pair breaking initially the prementioned downward trendline, in a first signal that the downward movement has been interrupted and take aim if not breach the 1.3590 (R1) resistance barrier.

Across the Atlantic, we note that the easing of inflationary pressures for August in Germany and Spain, given the preliminary HICP rate, tended to weigh on the common currency. Today we get August’s preliminary HICP rate for France and the Eurozone as a whole and a possible slowdown of the rates could strengthen the bearish sentiment for the common currency as it could enhance the possibility of the ECB cutting rates in its next meeting. Yet EUR traders are expected to keep also a close eye on the speeches of ECB’s Schnabel and Af Jochnick and a possible dovish tone could be additional reasons to sell the EUR.

On a technical level, we note that EUR/USD dropped yesterday placing some distance between the 1.1140 (R1) resistance line and its price action. Given the fact that the upward trendline guiding the pair since the 2^nd of August has been clearly broken signaling an end of the upward motion we switch our bullish outlook for a sideways motion bias initially. For a bearish outlook, we would require the pair to break clearly the 1.1010 (S1) support line and thus take aim of the 1.0890 (S2) support base. Should the bulls regain control over the pair’s direction, we may see the pair breaking the 1.1140 (R1) resistance line and thus open the gates for the 1.1275 (R2) resistance hurdle.

Other highlights for the day

Today we get Switzerland’s KOF indicator for August, the Czech Republic’s final GDP rate for Q2. In the American session, we get the US final UoM consumer sentiment for August. On Saturday, we get China’s NBS PMI figures for August and on Monday we get Australia’s building approvals rate for July as well as China’s Caixin Manufacturing PMI figure for August.