Core PCE still strong, but weaker than March
Although one reading isn’t considered a trend,it may be suggesting that inflation has plateaued.
Share this:
Considered to be the Fed’s favorite measure of inflation, the Core PCE for April was 4.9% YoY vs an expectation of 4.9% YoY and a reading of 5.2% YoY in March. This is the first drop in the index in 17 months. Although one reading isn’t considered a trend, looking at in context with other inflation readings, it may be suggesting that inflation has plateaued. The headline PCE reading was 6.3% YoY vs an expectation of 6.4% YoY and a March reading of 6.6% YoY. Recall that the April CPI reading was 8.3% YoY for April vs 8.5% YoY in March, while the Core CPI for April was 6.2% in April vs 6.5% in March. The softer inflation data has led to decreased expectations of aggressive Fed rate hikes and helped the US Dollar Index to sell off.
The US Dollar Index had been rallying in an upward sloping channel since May 2021. The DXY broke above the top of the channel on April 5th and continued moving higher, taking out the highs of January 2017 on May 6th and making its way to a recent high of 105.00 on May 8th. Since then, price has been pulling back and is nearing support on the daily timeframe at 101.03.
Source: Tradingview, Stone X
On a 240-minute timeframe, DXY has pulled back to the just above the 50% retracement level from the lows of March 31st to the highs of May 8th, near 101.34. Below there is horizontal support from the highs of April 19th at 101.03, then a confluence of support at the top, upward sloping trendline of the long-term channel and the 61.8% Fibonacci retracement level from the same timeframe near 100.50. First resistance is at the May 5th low near 102.35 and then again at the May 18th low of 103.19. Above there, price can move back up to the May 8th highs of 105.00.
Source: Tradingview, Stone X
EUR/USD makes up 57% if the US Dollar Index. Therefore, it makes sense that the DXY and EUR/USD would move in opposite directions a majority of the time. EUR/USD made a near term low on May 13th at 1.0348, holding support from the 2017 lows at 1.0340. The pair then bounced to horizontal resistance and the 50% retracement level from the March 31st highs to the May 13th lows near 1.0757/1.0767. If price continues higher, the next level of resistance is at the 61.8% Fibonacci retracement level from the same timeframe near 1.0865. Above there, price can move to horizontal resistance at 1.0945 and then the highs of March 31st at 1.1185.
Source: Tradingview, Stone X
However, notice that EUR/USD is diverging with the RSI on the 240-minute timeframe, an indication that price may be ready for a pullback. First support is at the May 19th highs of 1.0607 and then horizontal support near 1.0507. Below there, EUR/USD can fall to the lows of May 13th near 1.0348.
The Core PCE Index, said to be one of the Fed’s favorite measures of inflation for April came in weaker than the reading in March. Does this mean that inflation is plateauing? Markets have been taking the view that the “softer than prior months” inflation readings are a sign that the Fed may slow its aggressive rate hikes come September. As a result, the DXY has dipped and EUR/USD has gone bid.
Considered to be the Fed’s favorite measure of inflation, the Core PCE for April was 4.9% YoY vs an expectation of 4.9% YoY and a reading of 5.2% YoY in March. This is the first drop in the index in 17 months. Although one reading isn’t considered a trend, looking at in context with other inflation readings, it may be suggesting that inflation has plateaued. The headline PCE reading was 6.3% YoY vs an expectation of 6.4% YoY and a March reading of 6.6% YoY. Recall that the April CPI reading was 8.3% YoY for April vs 8.5% YoY in March, while the Core CPI for April was 6.2% in April vs 6.5% in March. The softer inflation data has led to decreased expectations of aggressive Fed rate hikes and helped the US Dollar Index to sell off.
The US Dollar Index had been rallying in an upward sloping channel since May 2021. The DXY broke above the top of the channel on April 5th and continued moving higher, taking out the highs of January 2017 on May 6th and making its way to a recent high of 105.00 on May 8th. Since then, price has been pulling back and is nearing support on the daily timeframe at 101.03.
Source: Tradingview, Stone X
Trade the DXY now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
On a 240-minute timeframe, DXY has pulled back to the just above the 50% retracement level from the lows of March 31st to the highs of May 8th, near 101.34. Below there is horizontal support from the highs of April 19th at 101.03, then a confluence of support at the top, upward sloping trendline of the long-term channel and the 61.8% Fibonacci retracement level from the same timeframe near 100.50. First resistance is at the May 5th low near 102.35 and then again at the May 18th low of 103.19. Above there, price can move back up to the May 8th highs of 105.00.
Source: Tradingview, Stone X
EUR/USD makes up 57% if the US Dollar Index. Therefore, it makes sense that the DXY and EUR/USD would move in opposite directions a majority of the time. EUR/USD made a near term low on May 13th at 1.0348, holding support from the 2017 lows at 1.0340. The pair then bounced to horizontal resistance and the 50% retracement level from the March 31st highs to the May 13th lows near 1.0757/1.0767. If price continues higher, the next level of resistance is at the 61.8% Fibonacci retracement level from the same timeframe near 1.0865. Above there, price can move to horizontal resistance at 1.0945 and then the highs of March 31st at 1.1185.
Source: Tradingview, Stone X
Trade EUR/USD now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
However, notice that EUR/USD is diverging with the RSI on the 240-minute timeframe, an indication that price may be ready for a pullback. First support is at the May 19th highs of 1.0607 and then horizontal support near 1.0507. Below there, EUR/USD can fall to the lows of May 13th near 1.0348.
The Core PCE Index, said to be one of the Fed’s favorite measures of inflation for April came in weaker than the reading in March. Does this mean that inflation is plateauing? Markets have been taking the view that the “softer than prior months” inflation readings are a sign that the Fed may slow its aggressive rate hikes come September. As a result, the DXY has dipped and EUR/USD has gone bid.
Learn more about forex trading opportunities.
Related tags:
Latest market news
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Gold outlook: XAU/USD hammered, stretched and vulnerable to a sharp rebound
Gold is getting hammered for solid fundamental reasons, but history suggests extreme four-hourly oversold conditions can produce violent countertrend rallies.
EUR/USD, USD/JPY Outlook: Oil, yields and an FX identity crisis
Crude oil is setting the tone across rates and FX, leaving EUR/USD vulnerable and USD/JPY caught between higher Treasury yields and the growing threat of intervention
AUD/USD Analysis: What's Next for the Australian Dollar After the RBA Decision?
Recent trading sessions have reflected a more neutral tone around the Australian dollar. This can be seen in AUD/USD price action, which has posted moves of roughly 0.2% over the last two sessions without establishing a clear direction. Much of this lack of momentum is linked to expectations surrounding the next policy moves from both the Reserve Bank of Australia (RBA) and the Federal Reserve.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.