Market summary
- The Fed’s preferred inflation measure softened faster than expected on Friday, with PCE inflation rising 3.8% y/y (4.6% expected) and April’s figure revised lower to 4.3% y/y (4.4% previously)
- PCE inflation rose just 0.1% m/m (0.5% expected, 0.4% previously) and core PCE rose 4.6% y/y (4.7% expected and prior)
- 1-year consumer price inflation expectations fell to a 2-year low of 3.2% according to the University of Michigan consumer sentiment survey
- The US dollar was the weakest major on Friday as softer than expected CPI data spurred bets that the Fed may only hike once more (despite clear warnings from Powell that two are likely coming), helping EUR/USD print a two-bar bullish reversal day (bullish piercing line)
- The S&P 500 gapped higher and closed at a 14-month high and the Nasdaq 100 is less than 60 points below its June high
- GBP was the strongest FX major in H1 (5%) and Q2 (2.9%) whist JPY was the weakest in H1 (-9.1%) and Q2 (-8%)
- USD/JPY rose to 145 on Friday thanks for softer inflation data from Tokyo, before pulling back towards Thursday’s low (in line with Friday’s bias)
- Whilst divergent monetary policies between the Fed and BOJ remain supportive of a higher USD/JPY, the odds of intervention from the BOJ or MOF are rising if history if anything to go by
- AUD/USD formed a 3-day bullish reversal pattern (morning star reversal) having formed a base around 66c
- Gold rose from the 1900 support area outlined in Friday’s European Open report
- View The Week Ahead for upcoming data points and themes for the week
Events in focus (AEDT):
- It is a public holiday in the US and Canada today so volatility may be lower than usual
- 09:50 – Japan’s quarterly Tankan survey
- 11:30 – Australia’s building approvals
- 11:45 – China’s manufacturing PMI (Caixin)
ASX 200 at a glance:
- The ASX 200 printed another small-ranged day on Friday ahead of key US inflation data
- Its lower wick found support at the 200-day EMA
- A strong lead from Wall Street and soft CPI data form the US and Australia could bode well for sentiment on the ASX 200
- A rally to 7300 seems feasible over the near-term
AUD/USD daily chart:
AUD/USD has seen quite a deep pullback on the daily chart, yet a 3-dat bullish reversal pattern has formed at the 66c handle, and the volume node from the previous rally. A move to the 0.6720 high seems feasible at a minimum over the near-term, and we’d consider bullish setups above Thursday’s high (and would welcome any pullback towards to help increase the potential reward o tris ratio).
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
