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Record PCE numbers failed to rally the USD

The dollar lost some ground on Friday even though the June personal consumption expenditure price index (PCE) increased 6.8% annually. JPY, NZD and AUD were the leading USD counterparts after the PCE release. Traders didn’t care about the fact that the PCE reading was the highest since January 1982 and higher than in the previous two months. It was the energy that rallied the PCE the most. The cost of energy jumped 43.5% while the other leading items were the cost of food (+11.2%) and the cost of goods (+10.4%). With food and energy excluded, PCE inflation ticker higher to 4.8% from 4.7%. Today’s main risk event is the ISM Manufacturing PMI from the US. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

In today’s report, I provide you with trade ideas, analysis and key technical levels on:

  • USOIL 
USOIL 8h chart 08 01

USOIL has a slight upward bias in the medium-term and is in the short-term ranging between 92.41 and 100.67. The nearest key price levels are at 88.24, 92.41, 100.67 and 102.75.

The market has been moving pretty much the way I expected. On July 27th I said (here) that the oil bulls aren’t as strong as they were in April. This suggested to me that the market could have more consolidation ahead.

Now the market has moved outside the bear channel but the rally on Friday was rejected at the 100.67 resistance level. This doesn’t signal that the bulls are in charge. They are trying to push the market higher but aren’t really making any progress which increases the risks of further short-term weakness. In order to turn strongly bullish the market needs to rally (decisively) above the range high (100.67). Otherwise, USOIL is likely to break below the range and test the 88.24 low again. If the level doesn’t hold then we’d be looking for a move to 85 or so. 

Gold 4h chart 08 01

XAUUSD trends higher and stays medium-term bullish above 1739. The nearest key S&R levels are 1739.19, 1752.03 and 1767.91.

Gold has lost some momentum since my latest report as the market has approached the upper end of the bull channel. The market has now rallied for 3 days in a row and as it is close to the channel high it could take a breather (consolidate a bit) before continuing the current trend. This far the bulls have been willing to defend the 1752 level that also coincides with the SMA(20). In a scenario where the 1752.03 support holds the bulls are likely to take XAUUSD above Friday’s high. However, if the 1752 level doesn’t hold we could see a corrective move to 1740 or so.

AUDUSD 8h chart 08 01

AUDUSD is trending higher and remains bullish above 0.6910. A decisive break below the level would violate the recent uptrend in the pair. The nearest key S&R levels are 0.6858, 0.6910 and 0.7031.

On July 25th (here) I said I expected AUDUSD to have more upside than downside potential and that I expected the market to move to the 0.7070 – 0.7140 range. The bulls have been able to push the market higher but the target range is still about 0.50% above the latest high. The rally has slowed down a bit but the pair is still short and medium-term bullish. 

USDJPY 4h chart 08 01

USDJPY is still trending lower and remains bearish below 134.55. Note also that the market is approaching an important support level at 131.49. The nearest key S&R levels are 131.49, 133.55, 134.60, and 135.80.

The bearish view on USDJPY I’ve had on USDJPY lately has given our traders numerous opportunities to short this market (if their own analysis agreed with mine). Now the market is approaching an important support level (131.49). The proximity to the level could bring in buying in the form of profit-taking. This is obviously only speculation and isn’t on its own a reason to act. This is only a heads up for you so you can keep an eye on price action in this pair. 

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsThe US 10-year treasury yield has been drifting lower since mid-June. The high in June was 3.498%. Last week’s close was 2.654%. 
EmploymentThe number of jobs in the US economy increased by 372K in June beating the market forecasts of 268K. The number was only slightly below the revised (down) 384K in May. The increase was in line with the average monthly gain of 383K over the prior 3 months indicating that the labour market stays strong. 
InflationThe annualised inflation rate for June accelerated to 9.1%. This was the highest reading the Q4 1981 (up 0.5% from May). The cost of energy rose 41.6%. Fuel prices increased 59.9%. These were the biggest increases in these items since Q2 1980. Food costs surged 10.4%, the most since Q1 1981.

 The Next Main Risk Events

  • USD ISM Manufacturing PMI
  • AUD Cash Rate
  • AUD RBA Rate Statement
  • USD JOLTS Job Openings
  • NZD Employment Change q/q
  • NZD Unemployment Rate
  • USD FOMC Member Bullard Speaks
  • CHF CPI m/m
  • EUR Spanish Services PMI
  • USD ISM Services PMI

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta

Chief Market Analyst

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