Money is seeking the safety of the dollar ahead of the core PCE release. On the hourly chart, the trend following EMAs and the momentum-based stochastic have crossed up. Market participants are worried that inflation remains resilient. Here, the Fed will need to remain hawkish and tighten further, which will negatively affect the present value of risk assets.
The core PCE is heading in the right direction. It has charted a lower peak followed by a lower trough. This is a downtrend and is heading towards the Fed's target of 2% average. The series is also showing signs of deceleration (green rectangle). Core PCE will come down further if this is maintained. However, the sticky elements are still resilient, which are acting as a headwind.
Current tightening has seen prices come down on the goods side of the basket. However, services are a concern, and have not responded adequately. The median CPI serves as a proxy for the sticky elements of inflation. It did show signs of moderating (red rectangle), but it ominously ticked up in January. This has given rise to concern over today's core PCE print, i.e. it may affect the deceleration which has led to core PCE charting its downtrend.
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.