US PCE data disappoints
Market Wrap
At the close of the London session, the Japanese yen was the weakest of the forex pairs, while the Australian and New Zealand dollars were appreciating across the rest of the G-10 currencies. The US dollar index has been correcting lower since yesterday’s high print of 92.8 but has tested the daily 200 ema which held at the first time of asking. A close today under the daily 200 ema which currently resides around the 92.68 level would be the first set up for a momentum reversal to the downside for next week. ActivTrader sentiment shows that 78% of the traders on the platform are bullish on the US dollar index at these levels.
On the daily time frame, we would need to see lower swing highs and lower swing lows before the bears pile back into the predominant DXY downtrend with any meaning. The Aussie and Kiwi at the time of writing were both up 0.60% today but the Kiwi’s performance especially is still heavily down this week and month. There hasn’t been any news out for the Antipodeans so I can only assume that it is an end-of-week adjustment and all about the US dollar.
The US trade deficit grew to $86.7billion in February, which when combined with an increasing fiscal deficit should be just right for the US dollar to over the long term depreciate further, again making me feel this run-up in the DXY is a bear market rally. Exports of goods fell by $5.1 billion to $130.1 billion, while imports decreased by $3.0 billion to $216.9 billion, and for the trade deficit gap to accelerate and therefore an acceleration in US dollar depreciation, we’re going to need to see imports growing.
WTI trade 4% higher at around $60.9 a barrel, recovering from yesterday’s 4%. This is most probably due to supply fears if the Suez Canal remains blocked by a container ship for the expected weeks rather than days. Oil has been declining with the rising US dollar but also as traders are more concerned about demand issues with European lockdowns.
Today’s data started with great UK retail sales figures month-on-month, which then led to the German Ifo data which was also positive. The European bourses were up in the London session and have held these levels into the US session. With DAX trading at 14,748.94 and the UK FTSE 100 trading 6,743.90. As the DAX continues on its bull run the sentiment indicator on ActivTrader shows that 74% of the traders are bearish, so when that figure flips, it may be time to take some profits.
There has also been good news for both Europe and the UK around their coronavirus vaccination programmes, which is in contrast to the Director of the Centers for Disease Control in the USA who has concerns over the rising cases in the United States. That said, the USA is continuing to reopen up their economy and are able to vaccinate at a faster rate than the nations that are currently affected by the 2nd and 3rd waves of more virulent variants to the covid-19 disease.
The big news out of the US session was that US personal spending fell even more than market expectations due to the cold weather in February. The PCE data today showed spending declined 1% from a month earlier in February, following an upwardly revised 3.4% growth in January. Personal income plunged 7.1% in February, the most on record. The transitory inflation is looking more likely to come true, especially with the combined lower PCE data and reduced energy costs, by the end of next month the Fed will have a clearer picture, assuming the Suez Canal disruptions are resolved quickly, and the market crash lows of 2020 are rolling out of the year-on-year data.