US Core PCE Up Next

The next key data focus for markets will be today’s US Core PCE data for May. On the back of Powell’s comments yesterday, where he downplayed recession fears and focused on the need to tame inflation, today’s data will be even more closely watched. With PCE the Fed’s preferred inflation input for its own calculation, today’s data has the potential to fuel plenty of market volatility. If we see a strong reading, above the 0.4% the market is looking for, this will certainly see market pricing for September start to increase, with the market already pricing in a 75% hike in July.

On the other hand, given the built up level of hawkish expectation in the market currently, if we see this data undershooting today this will likely allow for some near-term USD give back. The reaction would be especially pronounced in those instruments which have suffered the most during this latest USD rally, such as risk assets and risk linked currencies.

Where to Trade US Core PCE?

AUDUSD

The Aussie has been under plenty of pressure recently. The pair is currently sitting back on the .6833 level which has been a major support zone over recent months. Given the downtrend, any fresh USD upside following today’s later will give bears the chance to trade a break of the level, targeting .6681 initially. However, given the current falling wedge structure, I’m a little more interested in a topside break of the .6989 level targeting a move back up to .7170.