May’s US PCE rates to shake the markets

The USD continued to edge lower against its counterparts yesterday given also the market’s worries for the independence of the Fed, given that US President Trump has embarked on a dovish crusade undermining Fed Chairman Powell. The Fed is stalling to ease its monetary policy as worries among Fed policymakers exist about the path of inflation in the US economy. It’s characteristic that Minneapolis Fed President Kashkari stated in today’s Asian session that more clarity is required for tariff-related inflation. Should we see the US President continuing his attacks on the Fed Chairman, we may see the USD slipping further. Furthermore, we note that the final US GDP rate for Q1 showed an even wider contraction of the US economy for the period, darkening the US macroeconomic outlook. Today we highlight the US PCE rates for May as the last big test for the USD on a macro level, before next week’s US employment report for June. The rates are expected to edge higher both on a headline and core level, implying a persistence of inflationary pressures in the US economy. Should we see the rates accelerating beyond market expectations we may see the USD getting some support, as the market’s expectations for the Fed’s intentions may shift towards the hawkish side.

USD/JPY continued to edge lower yesterday placing come distance between its price action and the 145.50 (R1) resistance line. For the time being we tend to remain unconvinced for the pair’s bearish tendencies maintaining a sideways motion bias, as the Bollinger Bands remain relatively tight, implying less volatility for the pair, while the RSI indicator has failed to materially retreat below the reading of 50, reflecting a relative indecisiveness rather than a bearish sentiment among market participants. For a bearish outlook to emerge, we would require the pair’s price action to break the 142.20 (S1) support line, thus opening the gates for the 139.60 (S2) support level. Should the bulls take over, we may see the pair reversing the losses of the past few days by breaking the 145.50 (R1) resistance line and continuing to also break the 148.20 (R2) resistance level.

Gold’s price also continued to weaken in parallel with the USD, implying a disruption in the negative correlation of the two trading instruments. On a fundamental level, the Israel-Iran ceasefire and easing market worries for the tensions in the Middle East on a more general level, with the possibility of an ending of the war in Gaza emerging tended to allow for the precious metal to retreat. Focus is now also placed on the US PCE rates for May and a possible acceleration could weigh on gold’s price. Also reported progress in the US-Sino trade talks tends to ease market worries and lead to outflows for the precious metal.

XAU/USD continued its downward motion and seems to have started to aim for the 3200 (S1) support line. The RSI indicator remains just below the reading of 50 implying that the bearish tendencies of the market is still weak, yet we opt to adopt a bearish outlook for the precious metal’s price as lower peaks and troughs have started to form and a downward trendline was allowed to form from the drop of gold’s price in today’s Asian session. Should the bears maintain control over gold’s price, we may see it reaching if not breaching the 3200 (S1) support line, with the next possible target for the bears being set at the 3120 (S2) level. For a bullish outlook we would require gold’s price to break initially the prementioned downward trendline, in a first signal that the downward motion of the precious metal’s price has been interrupted and continue higher by breaking the 3365 (R1) resistance line and start aiming for the 3500 (R2) level.

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Today we get France’s preliminary HICP rates for June, the Czech Republic’s revised GDP rate for Q1 and Euro Zone’s Business climate indicators for June, while NY Fed President Williams speaks. Later we get the US Consumption rate for May and the final UoM consumer confidence for June, while Cleveland Fed President Hammack is scheduled to speak. In Monday’s Asian session, we note the release of Japan’s preliminary industrial output growth rate for May and China’s NBS manufacturing PMI figure for June.