The main event of the day is set to be the US inflation data, whilst also of interest is the European narrative with their own inflation print set to be released as well.
MORNING OVERVIEW
The US PCE rates for August are set to be released later on today. The PCE rates are the Fed’s favourite tool for measuring inflationary pressures in the economy and thus the release may garner attention from market participants.
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| S&P 500 | 7678 | +0.10% | US inflation data today |
| DXY | 101.28 | -0.09% | US inflation data today |
| EUR/USD | 1.1350 | +0.08% | Inflation data Germany+France |
| Gold | 4189 | +0.18% | US inflation data |
| Brent Crude | 96.42 | +0.27% | US-Iran talks |
KEY MARKET THEMES
01 — US Inflation data due out today
The US PCE rates for August are set to be released during today’s American trading session. The PCE rates on a core and headline rate are expected to remain steady at 3.3% and 3.7%, respectively. In turn, should the inflation print come in as expected or lower it could weaken the Fed’s resolve to continue on their tight monetary policy cycle, i.e withholding from hiking rates further. In turn, this could weigh on the greenback. However, should the data showcase an acceleration of inflationary pressures in the US economy, then the opposite may occur with the dollar finding support from market participants.
Market implication (USD): Bearish
02 — Germany’s and France’s preliminary HICP rates due today
During today’s European trading session, the two economic powerhouses of the EU, France and Germany are set to announce their preliminary HICP rates for the month of September. In particular, economists are expecting an acceleration from 2.6% to 3.1% for France and from 2.9% to 3.2% for Germany. Hence, with both readings expected to note an acceleration in inflation in the Eurozone’s two largest economies, pressure on the ECB to maintain their rate hiking path may intensify, which in turn could provide support for the common currency during tomorrow’s trading session. In our view, we wouldn’t be surprised to see an uptick in inflation for the Zone, considering how energy prices have continued to rise and the EU’s overexposure to foreign suppliers of energy. However, should the inflation print come in lower than expected or showcase mixed signals it could weigh on the EUR. As a note France’s HICP rates were released and came in hotter than expected at 3.4% which could support the common currency
Market implication (EUR): Bullish
03 — BOJ summary of opinions to be released tomorrow.
The BOJ’s summary of opinions are set to be released during tomorrow’s Asian session. The summary of opinions could provide insight into the BOJ’s inner deliberations in the previous meeting. Specifically, market participants may be looking to see as to whether the policymakers are indeed committed to hiking rates in the future. The market may need to be convinced that the BOJ is not going to simply adopt a wait-and-see approach as it has historically done, and should the SOP showcase such a scenario, we may see the JPY gaining. However, should it appear that policymakers are sceptical or concerned about back-to-back rate hikes, it could weigh on the Yen.
Market implication (JPY) : Bullish
WHAT MATTERS TODAY
US PCE rate for August
Time (GMT+2): 15:30
Expected: 3.7%
Previous: 3.7%
Potential market reaction:
Could weaken the USD
France’s preliminary HICP rate for September
Time (GMT+2): 09:45
Actual: 3.40%
Expected: 3.10%
Previous: 2.60%
Potential market reaction:
Could support the EUR
Germany’s preliminary HICP rate for September
Time (GMT+2): 15:00
Expected: 3.20%
Previous: 2.90%
Potential market reaction:
Could support the EUR
WHAT MATTERS TOMORROW
BoJ’s summary of opinions for their September meeting
Time (GMT+2): 02:50
Expected: N/A
Previous: N/A
Potential market reaction:
Could support the JPY if hawkish
ASSET FOCUS
[EUR / FOREX]
EUR/USD appears to be moving in an upwards fashion for the day. Yet we would opt for a predominantly sideways bias for the pair. For our sideways bias to be maintained we would require the pair to remain confined between our 1.1333 (S1) support line and our 1.1401 (R1) resistance level. On the other hand for a bullish outlook we would require a clear break above our 1.1401 (R1) resistance level with the next possible target for the bulls being our 1.1445 (R2) resistance line. Lastly, for a bearish outlook we would require a clear break below our 1.1333 (S1) support level, with the next possible target for the bears being our 1.1283 (S2) support line.
KEY LEVELS
- Resistance (R1): 1.1401
- Resistance (R2): 1.1445
- Support (S1): 1.1333
- Support (S2): 1.1283
Technical View: Neutral
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| US Equities | Neutral | US PCE rates |
| USD | Neutral | US PCE rates |
| Gold | Neutral | US PCE rates |
| Oil | Neutral | Rejection of Iran’s proposed deal |
TRADING SPHERE VIEW
Bullish for EUR
Our base case:
France’s preliminary HICP rate for September came in hotter than expected which could provide support for the EUR. Moreover Germany’s preliminary HICP rate is expected to accelerate as well which could aid the common currency
What would change our view:
Germany’s HICP rates failing to come in as expected.
RISKS TO THE VIEW
US Inflation accelerating
A hotter than expected inflation print for the US.
TODAY’S WATCHLIST
01 US PCE rates
02 France’s preliminary HICP rate
03 Germany’s preliminary HICP rate
04 US final GDP rate for Q2
DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication.
