Markets Await PCE Price Index, Investors Hold Breath

The NASDAQ hits a new high for 2023 owing to its latest bullish price movement to NVIDIA. So far this year, the NASDAQ has increased by more than 28%, while NVIDIA climbed 165% in 2023 alone. The US Gross Domestic Product and Unemployment Claims also supported most US Indices, indicating a resilient and robust economy. However, investors now focus on this afternoon’s PCE Price Index, which will be detrimental to the Federal Reserve’s policy. This will also indicate whether investors will be comfortable purchasing stocks at this psychological price level. 

If the PCE Price Index reads more than 0.3%, data from the week may push the Fed to hike. This week, the GDP figure indicates economic growth at a higher level than markets were expecting. In addition to this, the Unemployment Claims remain low. If inflation data is also higher, it would be thought of as the “icing on the cake”, and most economists would start pricing in more hikes.

This morning, Gurpreet Gill, the Macro Strategist at Goldman Sachs, advises that the Fed may “pause” in June but is almost certain to hike a further 0.50% by autumn. However, at the same time, Mrs. Gill also advises that the market is pricing in a rate cut by the end of the year. If the “pivot” does not arrive, the stock market may find itself “wrongly valued”. The PCE Price Index will be an essential indicator in the short term. 

This morning, European stocks are in the green, including the French CAC and the German DAX. The German DAX is up this morning by 0.32% and continues to obtain positive news from some of its most influential companies. Siemens confirmed this morning that they have an overflowing order book. The company CFO, Maria Ferraro, advises investors that the demand for green technology is significantly increasing. The stock price is up 0.57% this morning and 19% in 2023.

Furthermore, the debt ceiling negotiations are close to an agreement, and the President will sign before the deadline. According to the latest reports, the agreement will include a two-year cap on federal spending. The US Dollar Index retraces slightly, dropping 0.16% this morning but remains firmly above 104.09. When looking at the weekly price movement, the bearish price action this morning has so far only formed a retracement. Therefore, the index still trades within a trend pattern. However, the pricing will largely depend on today’s PCE Price Index. 

USD/JPY - Investors Hold Breath Before PCE Price Index Release

The USD/JPY has increased by 1.61% this week and is close to completing its third week of gains. However, this morning's price is retracing as the US Dollar declines against all competitors. Due to the PCE Price Index release this afternoon, the price may be under pressure from a lack of orders. Traders may be waiting for clarity from the inflation data before positioning their trades. Therefore, investors should be cautious of volatility and trends building after this afternoon's release. 

When looking at technical analysis, the price is still moving within an Elliot Wave-style trend pattern. The retracement has taken the exchange rate back to yesterday’s impulse wave but is not yet forming a lower low. When monitoring the regression channel, the USD/JPY is currently trading at the support level, and the RSI indicates a loss of momentum on the 15-minute chart. Though simultaneously, the price on a daily time frame provides a divergence signal. However, traders should be cautious that technical analysis will partially lose its importance when the index is released later this afternoon. 

USD/JPY 30-Minute Chart on May 26th 

The Japanese Yen is seeing small gains across the currency market. However, the currency is under pressure from this morning’s inflation data. This morning, Tokyo confirmed that the core inflation rate has declined from 3.5% to 3.2%, which is lower than expected. Poor inflation data does not support a currency struggling with an ultra-dovish monetary policy. 

The US Dollar saw substantial gains after yesterday’s economic data. The US GDP data read 1.3%, which is higher than the 1.1% economists expected. The data shows lower growth than the previous quarter, but the data shows that the economy is resilient against restrictive interest rates. Lastly, yesterday's weekly Unemployment Claims were also the lowest since April 6th. The data increased investors' confidence but was also deemed a stepping stone to more rate hikes. 

The next interest rate decision will take place on the 14th of June. Though, investors should note the US will release its PCE Price Index, employment data, and Consumer Price Index before the rate decision is made. Therefore, traders must continue to monitor developments. 

Summary:

• Investors now focus on this afternoon’s PCE Price Index, which will harm the Federal Reserve’s policy.
• The NASDAQ again renews its highs as NVIDIA stocks increase by more than 24%. The NASDAQ has increased by over 28%, while NVIDIA climbed 165% in 2023.
• The US GDP data read 1.3%, which is higher than the 1.1% economists were expecting. The US weekly Unemployment Claims were also the lowest since April 6th.
• Tokyo confirms that the core inflation rate has declined from 3.5% to 3.2%. The Japanese Yen continues to struggle with the ultra-dovish monetary policy.