The Federal Reserve’s favourite inflation indicator is set to be released in the last trading session of the week on Friday, and all indicators are pointing to this being a crucial data point with regard to when we see the next interest rate cut from the FOMC. Wednesday’s Fed minutes look likely to confirm that most current members still have a significant concern with the level of inflation in the economy and therefore anything off expectation with the PCE data should see big moves in the market.
The market is expecting the month-on-month number to show a 0.3% increase with the year-on-year data coming in around 2.9% or 3% which is still well above the FOMC’s desired 2% target. Anything off these expectations is likely to see big moves in Fed rate expectations and therefore a strong reaction in the dollar, anything +/- 0.2% on either metric should lead to extensive moves and provide traders with good trading opportunities on the release
USDJPY is again nicely place for big moves on this data as it could reflect a bigger disparity in interest rate differentials removing forward, especially if the data comes out lower increasing the likelihood and speed of a Fed rate cut against an anticipated Bank of Japan hike. USDJPY has decreased sharply over the last week since election results were announced confirming a majority for PM Takaichi and these moves should see an exacerbated reaction to Friday’s data with a lower result likely to see a challenge of recent lows and possibly a break south, whilst a stronger number may get a bigger move north back into recent ranges.
Resistance 2: 156.74 – Trendline Resistance
Resistance 1: 154.65 – February 11 High
Support 1: 152.25 – February Low
Support 2: 151.24 – Long-Term Trendline Support
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