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US Session Forex Brief, Apr 29 – Another Confirmation That Inflation Has Softened in the US

Last week we saw the USD trade in a bullish trend which started on Thursday the week before, after the impressive US retail sales report that day. The uptrend continued throughout last week apart from Friday when we saw a retrace lower, which was due.

Today, the market is uncertain which way to go and the price action has been pretty quiet all day. We have a big week ahead of us, so I suppose traders are remaining on the sidelines ahead of the Chinese manufacturing and services data and the Eurozone GDP report tomorrow, as well as the Canadian GDP and US consumer confidence. On Wednesday we have the employment report from New Zealand and the FED meeting. On Thursday, China will release the Caixin manufacturing PMI, the manufacturing reports from Europe, while on Friday the US employment and earnings report will be released.

So, the week is pretty packed with important economic data, especially the manufacturing reports from China and the Eurozone. This time, the manufacturing reports are pretty important since they will show whether this sector is really coming out of contraction as last month’s report showed, while in Europe this week’s report will show if there is any sign of life in European manufacturing activity after the deep contraction of the last two months.

But before all that, we had the US consumer spending and import reports today as well as the core price index. There were two simultaneous releases today for February and March and spending jumped higher in March despite income missing expectations. The core price index showed yet another soft reading today which reinforces the miss in inflation numbers we saw from the GDP report last week. Yet, the USD didn’t mind today’s numbers much.

European Session

  • Eurozone M3 Money Supply – The M3 money supply which accounts for the change in the total quantity of domestic currency in circulation and deposited in bank, has been increasing in the last several months. It stood at 3.7% in December last year and in February it increased to 4.3%. Although, it was expected to cool off to 4.2% in March, but beat expectations, increasing to 4.5%.
  • Eurozone Private Loans – Private loans have been growing by 3.2% and 3.3% on an annualized basis in the last several months. In February, private loans increased to 3.3% again and they were expected to remain at the same level in March. But today’s report missed expectations and ticked lower to 3.2%. So, higher M3 money supply is not translating into higher loans.
  • Eurozone Final Consumer Confidence The consumer confidence has been deteriorating in the Eurozone for quite some time. It fell to -7.9 points last month and this month it remained unchanged at the same level. Economic confidence missed expectations as well coming at 104.0 points against 105.0 expected, business climate indicator fell to 0.42 points against 0.49 expected and industrial confidence -4.1 vs -2.0 expected. Only the services index moved slightly higher to 11.5 points as expected from 11.3 points previously.
  • UK PM May Still Trying to Find A Consensus with Labour – UK PM spokesman was speaking earlier that a way forward in talks with Labour has yet to be found. Talks with Labour have involved serious discussions, further talks will continue again this afternoon, would like to introduce withdrawal agreement bill as soon as possible, but need to ensure it has realistic prospects of passing parliament vote. No scheduled talks between May and Corbyn at the moment.

The US Session

  • US Treasury Secretary Optimistic on China Deal – Mnuchin was commenting a while ago that he hopes that US and China can finalize a trade deal in two more rounds of talks. Enforcement mechanism in US-China trade talks is close to done. Chinese espionage issues are separate from trade, economic issues. He is not concerned about US yield curve, not worried about recession risk.
  • US Personal Consumer Expenditure Index – Core price index missed expectations of 0.2% for February and came at 0.1%, while for March it fell flat at 0.0%, missing expectations of 0.1%. So, two consecutive misses for core inflation. Core price index YoY for March also missed expectations, slipping to 1.6% against 1.7% expected. The previous number was also revised lower to 1.7% from 1.8%. The deflator MoM came at 0.2% against 0.3% expected, while the YoY number came at 1.5% against 1.6% expected. We are seeing another weak inflation report after the figures we saw in the GDP report last week. This should keep the FED on hold for some more time.
  • US Personal Spending and Income – There were two simultaneous releases today. February came at 0.1% against 0.2% expected while in March spending increased by 0.9%, beating expectations of 0.7%. Personal income missed expectation coming at 0.1% for March against 0.4% expected. Spending jumped in March but income is still soft and that will filter through in the coming months.
  • Pompeo Speaking on Oil – US Secretary of State Mike Pompeo was speaking a while ago, saying that the US will ensure that the Oil market will remain well supplied when Iran oil waivers are removed, as the US plans to go for full sanctions on Iran. He is confident that trade talks with Iran will not be affected by the removal of Iran oil waivers.

Bullish GOLD

  1. The main trend is bearish
  2. The pullback higher is complete
  3. The 100 SMA turned into resistance

The 100 SMA provided solid resistance last Friday

Gold has been on a bearish trend for more than two months after reversing at $1,346 in February. But, we saw a retrace higher last week as the sentiment turned slightly negative, especially after the US Q1 GDP report was released. The headline number was impressive but the components were sort of week and inflation cooled off considerably. But, the 100 SMA provided strong resistance on the H4 chart and the price formed an upside-down candlestick which is a reversing signal. Now stochastic is headed lower and Gold has turned bearish again.

In Conclusion

The price action still remains pretty quiet today, despite the release of the US personal income and spending report as well as the core price index numbers which showed another decline, reinforcing last Friday’s weak inflation numbers from the GDP report. I suppose the Chinese manufacturing and services PMI reports which will be released in the Asian session tomorrow will get things going, so hold your trading plans until then folks.

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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