Jumbo US inflation numbers fully expected

Overnight Headlines

*USD slipped against most of its peers but is bid this morning

*US equities were mixed with tech underperforming

*JPY weakness saw crosses move to new multi-year highs

US equities were mixed with stocks like financials and industrials tied to the reopening of the economy rising with small caps also outperforming. The Vix moved lower and Asian stocks are gaining with Japan outperforming on tech strength.

USD is currently trading just above 90 on the DXY with GBP a decent mover on the day after outgoing BoE policymaker and known dove Vlieghe hinted a rate hike early next year. EUR/USD was quiet printing a “doji” candle and two days of rising US bond yields helped USD/JPY finish 0.6% higher.

Market Thoughts – Next instalment of headline-grabbing rising prices

Today sees the release of the US April PCE inflation, personal spending data and a well-watched sentiment indicator. According to consensus, US headline inflation is set to jump to 3.5% from 2.3% while underlying inflation is forecast to accelerate from 1.8% to 2.9% which would be the highest in over three decades.

This core PCE reading is the Fed’s preferred inflation gauge (with the target being 2%) and it seems we will need to see a blowout number to move the market, with base effects well known and Fed officials unmoved by the already released CPI data. The top of the range for the y/y figure is 3.2% so we may see some volatility on any major disappointment as bond yields endeavour to climb off recent lows below 1.6% in the 10-year UST.

Chart of the Day – USD/JPY breakout

All JPY crosses like CAD, GBP and EUR made new highs on talk about a re-weighting in the MSCI global indices, essentially with Japanese stocks exiting and none going back in. Aside from this bi-annual event, US bond yields track USD/JPY closely and their recent pickup has also seen USD/JPY breakout of a symmetrical triangle pattern.

Prices had been trading in a tighter range around 109 over the last few sessions and this coiling effect normally sees a breakout in line with the dominant trend. In the case of USD/JPY, the bulls have seized the initiative with the pair moving towards 110 taking out recent highs at 109.79. The next target if they can sustain the break is the March high at 110.96. Support sits below the breakout area at 109.37 before the 50-day SMA just above 109.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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