USD Soars, EUR/USD, AUD/USD, slide on ‘Pricey’ GDP Figures Ahead of PCE

View related analysis:

• AUD/USD weekly outlook: Trimmed-mean CPI, PCE inflation on tap
• EUR/JPY Prods the Neckline of a Mammoth Bearish Reversal Pattern
• US dollar, yields dragged lower with consumer confidence, reviving rate-cut bets

Revised GDP figures revealed that prices heated up in the fourth quarter, providing yet further evidence that inflation is returning before Trump’s tariffs have been implemented, let alone take effect. Core PCE was upwardly revised to 2.7% q/q from 2.4%, or 2.5% y/y from 2.5% y/y. This comes on the eve of a key inflation report from the US, which could easily see markets pour cold water on the single Fed cut that had been pricing in for June this week.

While growth remained unchanged at 2.3% q/q, it is a slowdown from the 3.1% printed in Q3. Elsewhere we have seen services PMI contract and consumer sentiment crash on concerns of tariffs and higher prices to fan fears of a recession – which itself is deflationary. This could prevent from conspiring hikes unless prices truly run away from them, but for now at least I think it is safe to bet that a cut is not a focus for the Fed at present.

The US dollar was the strongest FX major on Thursday, closing above the 107 handle and rallying in line with my bias outlined earlier this week. It’s 0.7% gain on Thursday also marks its best day since January 2^nd to extend gains after finding support at a long-term 38.2% Fibonacci ratio. It appears to be breaking out of a rising wedge pattern, which suggests a target around its 109.62 base.

• The S&P 500 fell sharpy in the final ours of trade to close -1.5% lower, beneath its 100-day EMA, during its most volatile day of the year (daily range of 2.3%)
• This saw EUR/USD suffer the predicable fate of falling -0.7% to the 1.04% handle amid its second worst day of the year
• USD/JPY broke above 105 once more and looks set to extend gains over the near term.
• AUD/USD was lower for a fifth day, marking its worst day of the year with its -1.2% decline.
• The US 2-year yield teased a break of its November low for the second consecutive day. If this is pending a breakout from a multi-month top, a measured move lands around 3.7%, assuming the yield falls beneath the 4% figure

The question now is whether we’ll see an upside surprise in today’s core PCE figure for February. Given that Trump’s tariffs appear to be going ahead as scheduled on March 4^th and inflationary pressures are already resurfacing, it might only require an uptick on the PCE or super core inflation figures for the USD to catch another strong bid and see the odds of a June cut rapidly diminish.

Economic events in focus (AEDT)

• 10:30 – Tokyo CPI
• 10:50 – Japanese industrial production, retail sales
• 11:30 – Australian housing credit
• 13:00 – New Zealand M3 money supply
• 18:00 – BOW MPC member Ramsden Speaks
• 20:00 – German Sate CPI
• 00:00 – German CPI
• 00:30 – US core PCE

AUD/USD technical analysis:

Not only did AUD/USD close lower for a fifth day, but it was its most bearish day of the year and prices cut through the October low lie butter. Should we see a hot PCE report today, a sixth day low could be expected. 62c is the next likely support level, a break beneath which brings the 2022 low into focus for bears.

However, as we saw an extended move lower on Thursday and prices are holding above the monthly pivot point, cycle lows and just beneath the weekly S3 pivot, perhaps a minor bounce could be due in Asia. But given the potential for the US dollar to extend gains, traders may feel compelled to fade into rallies on AUD/USD.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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