Dollar Dominates: PCE Price Index & NFP Data in Spotlight

Investors are happy that the Core PCE Price Index at 0.2% is lower than the 0.4% 12-month average. The market’s reaction was seen mainly amongst US Dollar currency pairs, Gold and US Indices. The US Dollar Index, which is the value of the Dollar against six currencies, rose in value during the first two sessions but fell after the PCE Price Index. However, investors should note that the currency ended the day higher than the open market. The index remains unchanged this morning, but volatility will likely increase after this afternoon’s NFP data. 

The stock market, on the other hand also saw prices increase after the PCE Price Index, however, sold instruments struggled to hold onto gains. The leading three US-based indices rose to new weekly highs. However, the S&P 500 and Dow Jones fell to a lower price in the second half of the session. The NASDAQ also lost momentum in the second half of the US Session but rose by 0.25% by the end. However, NASDAQ investors will now concentrate on the earnings report from Broadcom, released this morning, and this afternoon's Employment Data. 

NASDAQ 

The NASDAQ has risen in value for four consecutive days, and investors changed their pricing due to the Fed’s terminal rate. Previous investors were pricing in a terminal rate close to 6%. However, investors now believe another interest rate hike in 2023 is unlikely. As mentioned, over the past four days, this is due to weak economic data, including economic growth and job vacancies. The inflation data from yesterday is also not sounding any alarm bells, which allows the NASDAQ to attempt a correction back to July’s highs. So far this week, the NASDAQ has risen 3.60%.

NASDAQ 15-Minute Chart on September 1st

However, today will be slightly pressured by the latest quarterly earnings report from Broadcom, which holds a weight of 3.063%. The ninth most influential stock within the NASDAQ declined by 4.50% after the market closed due to failing to beat expectations. The Revenue and Earnings per Share figures read as analysts expected. As a result, the stock’s order flow remained relatively flat. 

However, the index quotes are supported by bond corrections: popular 10-year US Treasuries yield 4.114% today, down from 4.314% last week, and the global 30-year yield is 4.221%, yielding the high of 4.446% from August 22. As a result, the stock market looks more attractive to investors. 

Investors will now focus on this afternoon’s Non-Farm Payroll, Average Hourly Earnings and the US Unemployment Rate. According to Bloomberg analysts, equities buyers will benefit from weaker-than-expected. However, the data should not be excessively weak as this can change investors' sentiment in risk-based assets. Investors have already seen a lower GDP figure, job vacancies and ADP employment. Therefore, a slightly weaker-than-expected figure today is adequate to ensure interest rate hikes remain unlikely, but that a recession is not imminent. 

 EUR/USD

The EUR/USD witnessed a significant decline yesterday and was close to losing value from the previous two days. The US Dollar did experience gains, which can be seen on the Dollar index. However, the price movement was primarily due to the Euro. The Euro declined in value against all other currencies. The exchange rate fell 0.80% across the three trading sessions. 

Yesterday's data on retail sales in Germany for July disappointed investors and put pressure on the Euro. Every month, Germany’s volume fell by 0.8% instead of the expected growth of 0.3%, and on an annualised basis, by 2.2 % instead of the estimated 1.0% decrease. However, depending on the region, inflation data is either on the rise or is not experiencing an adequate decline. The core consumer price index, which European Central Bank members are most interested in, rose from -0.1% to 0.3% every month and fell from 5.5% to 5.3% annually, corresponding to market expectations. 

The figures continue to point towards consumer prices rising, but unlike the US, the EU is edging closer to an economic downturn. Therefore, the regulator is put in a difficult position to either continue to hike to bring inflation under control and risk a recession or keep rates unchanged. Either way, the uncertainty is not in favour of the Euro. When monitoring technical indicators, the exchange price obtains “sell signals” like Thursday. This morning the price continues to trend below the Volume-Weighted-Average-Price, and the moving average has crossed downwards. In addition, the price is forming a bearish breakout and trading below neutral amongst oscillators. However, traders looking to continue speculating a decline ideally will also want to see higher-than-expected employment data. 

EUR/USD 30-Minutes on September 1st 

Summary:

• The Core PCE Price Index remains at 0.2% for a second consecutive month. The index remains below the 0.4% average over the past 12 months. 
• After the latest Core PCE Price Index, the US stock market renewed highs but struggled to hold onto gains. Only the NASDAQ managed to hold onto gains partially. 
• Investors turn their attention to this afternoon’s NFP data. According to Bloomberg analysts, equities buyers will benefit from weaker-than-expected. However, data should ideally not be fragile. 
• The Euro declines against all currencies due to uncertainty and pressure from more than one direction.