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US dollar bounce into London session close

Fridays are always tough as we have traders closing out positions before the weekend, options expire, and today the deluge of central bankers speaking. The tone is dovish and the sentiment is that the US dollar will appreciate with new stimulus and reduced inflation worries. Europe started well and the bourses are ending the week all green bar the Italian 40 index.

Market Wrap

The day started well for equities and the euro as German GfK consumer data came in much better than expected. The German DAX has once again tested the daily 20 ema but is looking very likely to end the trading session towards the highs of the day and green for the week. Momentum is to the upside but last week’s bearish close will be on traders’ minds. The UK FTSE100 has also made good ground today and will likely close higher for the second week in a row, and is a continuation of the bull trend as defined by higher highs and higher lows for the past 5 weeks. For the UK materials and energy, shares were the bullish catalyst and that has translated also through to the US markets where the major US equities are also at their weekly highs or all-time highs.

The US dollar index had dipped but has once again risen on Fed speakers and data. The daily 200 ema is acting like a magnet and this inability to close much lower is signaling buyers are very present at these levels.

The US data today was dominated by personal spending, which was unchanged in May, missing market expectations of a 0.4% increase. Services showed increases as the economy opened further led by recreation services, food services, and accommodations. The lack of stimulus cheques is influencing income though, as that showed a month-on-month decline of -2.0% but that wasn’t as bad as market analysts’ expectations of -2.5%

US core PCE is the inflation metric the Fed prefers to mention in their reports and for May a 0.5% came in under the April 0.7% and missed expectations of 0.6%, which will add to the ‘transitory’ narrative from the FOMC analysis. Year-on-year Core PCE for May did jump by the expected 3.4% so it will be a case of the Fed spinning that as still ‘base effects.’

The US University of Michigan Final data came in under expectations, though consumers are expecting a surge in inflation. "While many are optimistic about a gradual end to the pandemic, consumers still judged the risks from emerging covid variants as appreciable. It is likely that consumers will not reduce their savings and wealth to pre-pandemic levels, but maintain a higher level of precautionary funds," said Richard Curtin, surveys of consumers chief economist.

Minneapolis Federal Reserve President Neel Kashkari was one of many Fed speakers to say and he was full of optimism regarding the United States' economic recovery.

In his statement, he said that "very high" inflation can be expected, albeit it should only be temporary before it returns "back to normal." And he “believes millions of Americans on the sidelines of the labor market will return."

This morning’s strategy video detailed how I was looking for a break lower at resistance on the EURUSD and today's price action has gone a little way to playing out as I expected. Sentiment on the ActivTrader sentiment indicator has become more even as traders sold off as the US dollar strength grew.

I wouldn’t have taken the break of the trend line on a Friday, and I will monitor where we start the Monday London session. The idea still stands that we push into the 1.2000 before the real move and I fully expect that to be my base case next week. However, I am willing to accept that the bears are in force if we retest the 1.1930-1.1950 before continuing lower, should we get a significant sell-off into today’s US session close.


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