Source: Flickr

June 25, 2021

US PCE data tame, but supports Fed view

US Infrastructure deal “iffy”

US dollar open’s slightly lower, and extends losses after PCE

USDCAD open 1.2307-11, Overnight range 1.2301-1.2328,  Previous close 1.2321

FX at a Glance

FX Recap and outlook

The US PCE data was eagerly anticipated.  Analysts expected above consensus results which would have bolstered the case for the Fed to raise interest rates earlier than expected.  It didn’t happen.  The report was relatively tame.

Personal income declined 2.0% m/m in May due to declines in pandemic-related assistance programs while spending was flat.  S&P futures firmed, and the US dollar dipped, following the news.

News of a bi-partisan I US infrastructure spending plan drove Wall Street to a record close yesterday, and Asia indexes rallied as well.  European bourses are treading water. S&P 500 futures, and oil and gold prices are eking out gains.

The US infrastructure bill is far from a sure-thing after President Biden threatened to veto it if Congress failed to pass some of his pet spending projects.

Today’s PCE report and former New York Fed President William Dudley help to reinforce Fed Chair Powell’s dovish policy stance .  Mr Dudley said that the only opinions that matter are those of Mr Powell, Vice Chair Clarida, and NY Fed President Williams, as they set the agenda, implying the other Fed officials’ comments are less important.

USDMXN erased almost all of June’s gains with a surprise 0.25% interest rate hike to 4.25%, due to higher than expected inflation yesterday.   USDMXN dropped from 20.6690 on Tuesday to 19.7177.

EURUSD traded in a 1.1928-1.1950 range until the US data when prices climbed to 1.1966.  However, the conflicting monetary paths between the ECB and Fed suggest EURUSD gains will continue to be capped in the 1.1970-1.2000 area.

GBPUSD dropped from 1.3980 pre-Bank of England meeting to 1.3888 after the BoE failed to deliver an anticipated hawkish message.  Prices drifted in a 1.3898-1.3944 range overnight.  Policymakers have torn a page from Fed Chair Powell’s playbook and say they are focused on employment, while believing inflation gains to be transitory.

USDJPY dropped from 110.97 yesterday to 110.67 in Europe, then popped to 110.80 in early NY trading. The currency pair is underpinned by US Treasury yields, and awaits PCE data for further direction.

AUDUSD and NZDUSD managed to squeeze out small gains compared to Thursday’s opening level, on the back of improved risk sentiment following the US infrastructure news.

USDCAD traded choppily in a 1.2280-1.2340 yesterday and 1.2286-1.2321 today, with prices moving lower after the US data.  The currency pair is tracking broad US dollar sentiment with domestic influences largely ignored.  The longer-term technicals are bearish below 1.2490, while support in the 1.2000-50 area puts a floor on the downside.

US PCE and Michigan Consumer Sentiment data are ahead.

USDCAD technical outlook

The intraday USDCAD technicals are bearish while trading below 1.2320, looking for a break below 1.2250 to extend losses to 1.2150.  A move above 1.2340 targets 1.2410.  For today, USDCAD support is at 1.2250 and 1.2150.  Resistance is at 1.2340 and 1.2400.   Today’s range 1.2270-1.2340

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank