Dollar Recovering after Strong PCE Inflation, But Still The Worst Performer

Dollar is recovering in early US session, follow another print of strong consumer inflation. 10-year yield is also back above 2.7% handle. Still, the greenback is the worst performer for the week together with Euro. Yen is retreating mildly but stays the strongest one for the week, followed by Sterling. Commodity currencies are mixed, slightly on the soft side.

Technically, while Euro is still week, it appears to be stabilizing in some crosses. Break of 0.8424 minor resistance in EUR/GBP, 1.4666 minor resistance in EUR/AUD, and 137.31 minor resistance in EUR/JPY, will argue that the selling climax is already over for the near term.

In Europe, at the time of writing, FTSE is up 0.59%. DAX is up 1.12%. CAC is up 1.65%. Germany 10-year yield is up 0.059 at 0.892. Earlier in Asia, Nikkei dropped -0.05%. Hong Kong HSI dropped -2.26%. China Shanghai SSE dropped -0.89%. Singapore Strait Times dropped -0.28%. Japan 10-year JGB yield dropped -0.0256 to 0.183.

US PCE inflation rose to 6.8% yoy, core CPI rose to 4.8% yoy

US personal spending rose 0.6% mom or USD 133.5B in June, above expectation of 0.5% mom. Personal spending rose 1.1% mom or USD 181.1B, above expectation of 0.9% mom. The rise in spending reflected USD 94.9B increase in goods and USD 86.2B in services.

Headline PCE price index accelerated from 6.3% yoy to 6.8% yoy, above expectation of 6.7% yoy. That’s also the highest level since January 1982. Core PCE price index also rose from 4.7% yoy to 4.8% yoy, above expectation of 4.7% yoy.

Canada GDP unchanged in May, grew 0.1% mom in Jun

Canada GDP was essentially unchanged in May, better than expectation of -0.2% mom contraction. Services-producing industries rose grew 0.4% mom while goods-producing industries contracted -1.0%. 14 of 20 industrial sectors increased.

Advance information indicates that GDP grew 0.1% mom in June, as output was up in the construction, manufacturing, and accommodation and food services sectors. Also, GDP grew 1.1% qoq in Q2.

Eurozone GDP grew 0.7% qoq in Q2, EU up 0.6% qoq

Eurozone GDP grew 0.7% qoq in Q2, well above expectation of 0.1% qoq. Comparing with same quarter of last year, GDP grew 4.0% yoy.

EU GDP grew 0.6% qoq, 4.0% yoy. Among the Member States for which data are available for the second quarter 2022, Sweden (+1.4%) recorded the highest increase compared to the previous quarter, followed by Spain (+1.1%) and Italy (+1.0%). Declines were recorded in Latvia (-1.4%), in Lithuania (-0.4%) and in Portugal (-0.2%). The year on year growth rates were positive for all countries.

Eurozone CPI rose to record 8.9% yoy, core CPI rose to 4% yoy

Eurozone CPI rose from 8.6% yoy to 8.9% yoy in July, above expectation of 8.7% yoy. That’s also another record high. CPI core (all-items ex energy, food, alcohol & tobacco) rose from 3.7% yoy to 4.0% yoy, above expectation of 3.8% yoy.

Looking at the main components inflation, energy is expected to have the highest annual rate in July (39.7%, compared with 42.0% in June), followed by food, alcohol & tobacco (9.8%, compared with 8.9% in June), non-energy industrial goods (4.5%, compared with 4.3% in June) and services (3.7%, compared with 3.4% in June).

Swiss KOF dropped to 90.1, economy to develop sluggishly in Autumn

Swiss KOF Economic Barometer dropped sharply from 95.2 to 90.1 in July, well below expectation of 95.2. That’s also the third decline in a row, with the value below its long-term average by almost 10 pts. KOF said the Swiss economy is likely to “develop sluggishly in autumn”.

KOF said: “The retreat in July is led by the bundle of indicators for manufacturing. But the outlook is also much less favourable than before in accommodation and food service activities, other services, and financial and insurance services. The negative tendency is also evident in the bundle of indicators for private consumption in general. The decline is dampened somewhat by the indicators for construction and foreign demand.”

BoJ opinions: Appropriate to encourage wage increases through monetary easing

In the Summary of Opinions at BoJ’s July 20 and 21 meeting, it’s noted that, “Bank should support financing, mainly of firms, and maintain stability in financial markets, and should not hesitate to take additional easing measures if necessary.” Additionally, it is “appropriate for the Bank to maintain the current forward guidance for the policy rates.”

“While Japan’s economy is on its way to recovery from the pandemic, it has been under downward pressure due to an outflow of income from Japan caused by high commodity prices,” one member noted. “In this situation, it is appropriate that the Bank encourage wage increases through monetary easing, aiming to achieve the price stability target in a sustainable and stable manner”.

Japan industrial production rose record 8.9% mom in Jun, recovery to continue

Japan industrial production rose strongly by 8.9% mom in June, well above expectation of 3.7% mom. That’s also the biggest monthly rise since data become available in 2013. Car production jumped 14.0% mom thanks to easing of lockdowns in Shanghai of China. Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to extend its recovery by 3.8% in July and 6.0% in August.

Also released, retail sales rose 1.5% yoy in June, below expectation of 2.8% yoy. Unemployment rate was unchanged at 2.6% in June. Housing starts dropped -2.2% yoy in June, versus expectation of -1.2% yoy. Consumer confidence dropped from 32.1 to 30.2 in July, below expectation of 33.0. Tokyo CPI core accelerated from 2.1% yoy to 2.3% yoy in July, above expectation of 2.2% yoy.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0129; (P) 1.0182; (R1) 1.0249; More…

Intraday bias in EUR/USD remains neutral and outlook is unchanged. On the upside, above 1.0277 minor resistance will target 1.0348 resistance first. Break there will target channel resistance at 1.0469. on the downside, break of 1.0095 minor support will bring retest of 0.9951 low instead.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0773 resistance holds, in case of strong rebound.

Economic Indicators Update