FX Daily Strategy: Asia, Aug 27
Firm revised PCE prices data brings in a touch of n/t support for oversold dollar
EUR/USD and cable drop back from resistance areas in corrective action
Nvidia overnight and Warsh ahead. ECB Minutes in focus on Thursday
First major event of the week out the way, and the US data overall came in sufficiently on the hot side to offer US2s some yield support and with it the recently oversold dollar. In particular, a firmer before rounding latest core PCE print, and upward back revisions to Q2, overall gave a somewhat sticky overall skew to the prices data and reinforced the impression that it remains above target. We still have the other two big focal points to come – first, the Nvidia results that come in after the close and will be setting some of the tone early Thursday, and second, the much-awaited Warsh speech on Friday.
Regarding the latter, there’s plenty of speculation on what he might have to say and some thoughts that he might want to sound a hawkish note given the recent circumstances and market doubts expressed.
Given that fact and motivation however, there is a sense in which any comments will be chosen for rhetorical and presentational reasons rather than particularly giving any genuine insight, least of all the forward guidance that Warsh is avoiding.
In the meantime though, EUR/USD had got short-term overbought on the run to 1.17~ and so the latest still undesirable US inflation prints do provide a decent pretext for some nearby unwinding at least. Initial support being retested is 1.1650, and break beneath here cannot be ruled out, with focus then turning to congestion support at 1.1600. At the moment, there is still better USD supply into good pullbacks however.
Cable also has similarly shown signs of flagging after a comfortable summer run. The pair made it into the obvious resistance at the monthly highs at and just above 1.3650 and so prone to some profit-taking if the dollar finds some immediate support. 1.36-1.3550-area is corrective support here.
As far as Thursday is concerned, we have the July ECB monetary account and that will be scrutinised for any insight on its current thinking and clues on its plans for September. Ahead of these, the market is currently priced around 95% for a Sep hike, so it would take something quite surprising to shift the entrenched view that this is pre-determined.
In the US, the usual weekly initial claims are due, while we also expect a rise in July’s advance goods trade deficit to $105.0bn from $101.5bn in June.