Core PCE has come in at 2.9% y/y, with a strong showing in disinflation towards the Federal Reserve's target of 2%. The monthly number is 0.17%, which annualises to 2.01%. There is a general confidence that the Federal Reserve is well on its way to hitting its inflation target, with the market currently giving a 50-50 chance of a 25bps cut in March and a 90% chance in May.
FXCM's USDOLLAR basket had a strong start to the year until mid-January. Since then, it has been treading water and moving sideways as the market mulls the likelihood of a March rate cut.
There is a general sense of a Goldilocks economy as Advance GDP q/q, released on Thursday, beat expectations, printing at 3.3%. Such a scenario is likely to see capital rotate out of the dollar safe-haven and into risk, as long as economic growth remains resilient. To this end, the USDOLLAR seems to have charted a bearish wedge pattern (green converging trendlines).
We highlight the FOMC statement (7:00pm GMT) and press conference (7:30pm GMT) on Wednesday. A dovish tone in communication will likely coincide with a breakdown in the wedge pattern if there is a perceptible increase in the likelihood of a March cut.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.