XAUUSD - LONG SETUPWe went long at 2338.45 after the news broke on PPI m/m data.
Tight stops as trading news can be extremely volatile and risky. A conservative take profit is sitting at 2361.83 with another TP at 2370.30
Powell
What did Powell say and what did gold do? Federal Reserve Chair Jerome Powell expressed reservations about the trajectory of disinflation in the US during his recent remarks, stating, "My confidence in that is not as high as it was." Despite this, he indicated that further rate hikes were unlikely based on the data from the first quarter of the year.
Powell's comments largely echoed those made during his last press conference following the Federal Reserve's previous meeting.
Market sentiment regarding the Fed's rate decisions appears to be slightly adjusting though, particularly after the release of new data showing faster-than-expected increases in producer prices in April. Traders are now considering a 60% chance of a rate cut in September, down slightly from the 64% chance before Powells remarks and the Producer Price Index (PPI) report.
Following the release of the PPI data, the XAU/USD pair climbed nearly 0.8% to $2,357, with potential for further gains in upcoming trading sessions. Technical analysis indicates that the next obstacle for gold prices lies near trendline resistance at $2,370, while immediate support rests close to $2,320, followed by the 50-day Moving Average.
Market attention now turns to the release of consumer price data for April, scheduled for Wednesday.
USD/JPY slides – did Tokyo intervene?It has been a remarkable week for the yen, which has exhibited sharp swings throughout the week.
The Japanese yen fell as much as 1% earlier and on Thursday but has pared most of those losses. USD/JPY has risen 0.38% to 155.19 at the time of writing.
Japan suspected of intervention
In the Asian session, the yen fell as low as 157.55 but then recovered to precisely 153. The reason for the swing is unclear but there are strong suspicions that Japan’s Ministry of Finance (MoF) ordered another round of intervention. Japan’s top currency official, Masota Kanda, refused to comment on whether Japan had intervened. Kanda was also mum about whether there was intervention on Monday, when the yen spiked and fell below the 160 level before recovering.
Money market movements indicate that the MoF did intervene on Monday, selling as much as $35 billion to prop up the yen. The yen’s swings Monday and today could signal that the MoF has targeted 160 as its “line in the sand” for intervention.
Fed holds rates, US dollar slips
There was no surprise from the Federal Reserve which maintained the benchmark rate in the target range of 5.25% to 5.50% on Wednesday. This marked a six straight pause, as Fed Chair Powell was clear that high inflation has delayed rate cuts. The rate statement said that inflation had fallen in the past year but there was a lack of progress towards the 2% inflation target in recent months. At a press conference, Powell said that the Fed was not yet confident that inflation was falling closer to the target.
Consumer inflation has been moving higher and the US economy remains surprisingly strong, which has complicated the Fed’s plan to provide relief to households by lowering rates. Still, the Powell said the next rate move was unlikely to be a hike, which sent the US dollar broadly lower against the majors on Wednesday. The yen soared as much as 3.2% against on the dollar after the rate announcement and closed on Wednesday with gains of 2%.
USD/JPY is testing resistance at 155.13. Above, there is resistance at 157.26
There is support at 152.27 and 150.14
Sell Stop adjustmentLearned I can press record ! LEts see if this adjustment to the sell stop pays off
Sell Stop GCM2024Been a while, Ill be getting back i the mix, didnt see a set up yesterday I liked for Technical Tuesday, heres what I like today.
GBP/USD eyes retail salesThe British pound is having a quiet week and that trend has continued on Thursday . In the North American session, GBP/USD is trading at 1.2450, down 0.04%.
The UK release retail sales for March on Friday. The market forecast for March is 0.7% y/y after a decline of 0.4% y/y in February. Today’s British Retail Consortium retail sales index jumped 3.5% y/y in March, raising hopes that the official retail sales release will also improve. The driver behind the strong gain was spending on food, as the Easter holidays fell in late March.
Retail sales have shown sharp swings in 2024, with adverse weather keeping shoppers at home and weighing on consumer spending. The weather will improve in the coming months and the Paris Olympics and Taylor Swift concerts are expected to lead to an increase in consumer spending and demand.
Inflation in the UK declined to 3.2% y/y in March, down from 3.4% in February but higher than the market estimate of 3.1%. The inflation rate fell to its lowest since September 2021 but the BoE remains cautious and is yet to signal that rate cuts are coming, especially as core inflation has proven to be sticky and is more than double the 2% target.
In the US, the Federal Reserve is none too happy about inflation accelerating in February and March. Fed Chair Powell said this week that higher-than-expected inflation would delay rate cuts and there are doubts whether the Fed will raise rates at all this year. The markets have slashed expectations for rate cuts due to the robust US economy and rising inflation.
GBP/USD tested support at 1.2451 earlier. Below, there is support at 1.2421
There is resistance at 1.2486 and 1.2516
AUD/USD steadies ahead of employment dataThe Australian dollar has stabilized on Wednesday, after a 2.2% decline over the past three days. In the North American session, AUD/USD is trading at 0.62254, up 0.37% but remains close to five-month lows.
Australia’s employment is expected to post a small gain of 7,200 in March after a blowout gain of 116,500 in February. The unemployment rate is expected to bump up to 3.9% after falling from 4.1% to 3.7% in February.
The stunning February jobs report made the Reserve Bank of Australia look good, as it paused rates (rather than cut) just two days earlier at its policy meeting. If the March data shows that the February release was a one-time blip and that the labor market is indeed cooling down, expectations for a rate cut will increase. The RBA has held the cash rate at 4.35% for three straight times and meets next on May 7.
The RBA will be monitoring key data ahead of the meeting and next week’s CPI release for the first quarter will be a key factor in the rate decision. Inflation has been moving lower but still remains above the target range of 2-3%. In February, headline CPI was unchanged at 3.4% while core inflation dropped from 4.1% to 3.9%.
In the US, the Federal Reserve is dealing with a robust US economy and rising inflation. This is complicating the battle with inflation and prompted Fed Chair Powell to deliver a blunt message on Tuesday.
Powell said that the Fed would wait longer than previously expected to lower rates as a result of higher than expected inflation reports. This warning led the markets to pare the odds of rate cut expectations, raising the possibility that the Fed might forgo rate cuts until 2025.
AUD/USD tested resistance at 0.6437 earlier. Above, there is resistance at 0.6472
0.6413 and 0.6378 are the next support levels
FOMC FORWARD GUIDANCE SINCE 2018 w/FED SPEAKERS w/SPX The chart provided visually represents the forward guidance issued by the Federal Open Market Committee (FOMC) alongside the performance of various key economic indicators and market indices. The FOMC forward guidance serves as a crucial tool for signaling the Federal Reserve's monetary policy stance and future intentions, thereby influencing market expectations and economic behavior.
By examining the interplay between FOMC forward guidance and these key economic indicators, investors, policymakers, and analysts can gain insights into the likely direction of monetary policy and its potential impact on financial markets and the broader economy.
I have also included comments from various FOMC speakers to better form a picture of the past.
Japanese yen jumpy ahead of US payrollsThe Japanese yen showed a bit of strength earlier but has pared these gains. In the European session, USD/JPY is trading at 15141, up 0.04%
The markets are bracing for a sharp drop in US nonfarm payrolls for March. Job growth hit 353,000 in January but then fell to 275,000 in February and the market estimate for March stands at 200,000. The labour market has stood up well in the face of elevated interest rates but another decline in the March data would indicate a clear downtrend in job growth, which would support the Federal Reserve deciding to lower interest rates sooner rather than later.
When can we expect the Fed to take the plunge and start lowering interest rates? That is a tough one to answer, especially because not all Fed members are on the same page, as evidenced by comments this week. Fed Chair Jerome Powell said that although inflation has been bumpy, he expected the Fed to lower rates “at some point this year”. Cleveland Fed President Loretta Mester echoed this position, saying that the Fed was becoming more confident that it could lower rates in the next few months.
Minneapolis Fed President Neel Kashkari sounded more hawkish, as he questioned if rate cuts were needed this year “if we continue to see inflation moving sideways”. Kashkari does not have a vote on monetary policy but his comments indicate that a rate cut is not a given and will depend on the data, in particular inflation.
In Japan, household spending rebounded in February with a gain of 1.4% y/y, compared to -2.1% in January. This beat the market estimate of 0.5%. On an annualized basis, household spending dropped 0.5%, following a 6.3% decline in January and beating the market estimate of -3%. The 0.5% decline marks a 12th straight drop in household spending but the rebound leaves room for optimism.
USD/JPY is testing resistance at 151.41. Above, there is resistance at 151.71
There is support at 151.06 and 150.76
EUR/USD falls to five-week lowThe euro has edged lower on Friday. In the European session, EUR/USD is trading at 1.0782, down 0.05%.
It has been a bumpy road for the euro in 2024, as the currency has declined 2.3% so far this year. Earlier today, EUR/USD dropped as low as 1.0768, its lowest level since February 21.
Germany, the largest economy in the eurozone, continues to struggle and that is weighing on the eurozone as well as the euro. German consumer confidence is mired in negative territory and this week’s retail sales report was dismal, with a 1.9% decline m/m in February. This was shy of the market estimate of 0.3% and marked a fourth straight decline. On an annualized basis, retail sales slumped by 2.7%, a fourth straight decline.
German and eurozone data has been weak, which is not surprising as elevated interest rates have dampened growth. The European Central Bank held the key interest rate at 4.0% for a fourth straight time this month and must decide on the appropriate timing for a rate cut.
The April or June meetings appear the most likely times for a rate cut. ECB member Francois Villeroy was the latest ECB policy maker to weigh in, saying on Thursday it was important to make a “moderate cut”, even if the ECB decided to then resume holding rates. ECB member Fabio Panetta said the same day that the central bank was leaning towards lowering rates as inflation continued to decline.
In the US, the week wraps up with the PCE Core Index, considered the Federal Reserve’s preferred inflation indicator. The index is expected to tick lower to 0.3% m/m in February, compared to 0.4% in January. Fed Chair Jerome Powell will speak at a conference in San Francisco and the markets will be hoping for some insights about rate policy.
EUR/USD tested support at 1.0765 earlier. Below, there is support at 1.0743
1.0798 and 1.0820 are the next resistance lines
NQ Power Range Report with FIB Ext - 3/22/2024 SessionCME_MINI:NQM2024
- PR High: 18590.75
- PR Low: 18569.00
- NZ Spread: 48.75
Key economic calendar event
09:00 | Fed Chair Powell Speaks
Prev session closed virtually flat
- QQQ daily gap still unfilled
- Holding above prev session close
- Huge upper wick on prev session daily print
Evening Stats (As of 1:35 AM)
- Weekend Gap: N/A
- Gap 10/30 +0.47% (open < 14272)
- Session Open ATR: 258.68
- Volume: 27K
- Open Int: 251K
- Trend Grade: Bull
- From BA ATH: -0.6% (Rounded)
Key Levels (Rounded - Think of these as ranges)
- Long: 18675
- Mid: 18106
- Short: 16963
Keep in mind this is not speculation or a prediction. Only a report of the Power Range with Fib extensions for target hunting. Do your DD! You determine your risk tolerance. You are fully capable of making your own decisions.
BA: Back Adjusted
BuZ/BeZ: Bull Zone / Bear Zone
NZ: Neutral Zone
The FOMC meeting, rising wedge, and VIX dropYesterday’s FOMC meeting ended as widely anticipated, with no change to monetary policy. During the press conference, the FED’s chairman reiterated the central bank’s commitment to bringing inflation under control and outlined a strong economy and tight labor market. Jerome Powell also described inflation as being on a downward trajectory and explained the need to stay attentive to inflation rates. In addition to that, he acknowledged the emergence of some negative effects of high interest rates on the economy.
Markets reacted positively to Jerome Powell’s statements and rallied across the board. The SPX broke above $5,200 and established a new all-time high at $5,226. Simultaneously, the VIX experienced a significant drop that led to the distortion of its broadening structure on the daily chart. While the SPX remains over-extended above the upward-sloping channel, this drop could foreshadow the SPX’s move slightly higher, in the area between $5,300 and $5,350.
Particular things to watch out for in the following days include the next developments with the VIX, the rejection/success of RSI breaking above 70 points (on the daily time frame), the support at $5,180, and the pattern resembling a rising wedge (on the 4-hour time frame).
Illustration 1.01
Illustration 1.01 displays the VIX’s daily graph. The yellow arrow indicates a breakout below the lower trendline, distorting the structure with higher peaks and higher troughs.
Illustration 1.02
The picture above shows the 4-hour chart of the SPX. Yellow dashed lines highlight the pattern resembling a rising wedge formation.
Here are some of the most important statements from Jerome Powell’s speech:
“Inflation has eased substantially while the labor market has remained strong, and that is very good news. But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain. We are fully committed to returning inflation to our 2 percent goal.”
“Our restrictive stance of monetary policy has been putting downward pressure on economic activity and inflation. As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are moving into better balance.”
“Activity in the housing sector was subdued over the past year, largely reflecting high mortgage rates. High interest rates also appear to have weighed on business fixed investment. In our Summary of Economic Projections, Committee participants generally expect GDP growth to slow from last year’s pace, with a median projection of 2.1 percent this year and 2 percent over the next two years.”
“Over the past three months, payroll job gains averaged 265 thousand jobs per month. The unemployment rate has edged up but remains low, at 3.9 percent. Strong job creation has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a continued strong pace of immigration”
“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. The economic outlook is uncertain, however, and we remain highly attentive to inflation risks. We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.”
“We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2 percent.”
“ If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of this year, 3.9 percent at the end of 2025, and 3.1 percent at the end of 2026—still above the median longer-term funds rate.”
“Turning to our balance sheet, our securities holdings have declined by nearly $1.5 trillion since the Committee began reducing our portfolio.”
Technical analysis gauge
Daily time frame = Bullish
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.
THE KOG REPORT - FOMC The KOG REPORT – FOMC
This is our view for FOMC, please do your own research and analysis to make an informed decision on the markets. It is not recommended you try to trade the event if you have less than 6 months trading experience and have a trusted risk strategy in place. The markets are extremely volatile, and these events can cause aggressive swings in price.
Today’s FOMC may bring a curveball with it, so we’re going to use the extreme levels as usual, but, we’re going to say please play caution on the markets. The trade always comes after the event, patience will pay on this one!
We have the support level below 2150-55 as mentioned through the week, with resistance above 2175 which are both either side of range play at the moment. Our bias is still active, but, due to the volatility that may present itself, we’ll stick with the higher levels as potentials regions for a RIP. So, if price does carry up towards the 2175-85 region and we can see a clean set up, an opportunity to short the market back down initially into the 2155 levels and then on the break, below that 2148 and further down could be available.
Please note, that breaking above will invalidate this and we are likely to see higher pricing through the rest of the week. There was a level of 2210 in extension of the move, which is extreme volume enters is a possibility, so if you’re going to risk it, your risk model better be up to scratch!
On the flip. Rejection around this 2165 region, we can see price attempt the support 2145 and upon the break we will be looking for this to go lower, initially into the 2135 region and then below that potentially 2120! If we get that move to the downside, we will be looking to carry any open trades down into the given regions if we get a clean set up, and only long for the scalps and quick captures from the given levels.
In all honesty, right now thoughts are we would rather let this play out and let the take the price to where they want. We’ll still with the plan for now on the KOG Report which has worked well, but any trades should be protected and a majority taken.
Please do support us by hitting the like button, leaving a comment, and giving us a follow. We’ve been doing this for a long time now providing traders with in-depth free analysis on Gold, so your likes and comments are very much appreciated.
As always, trade safe.
KOG
THE KOG REPORT - NFP 08/03/24
The KOG REPORT – NFP
This is our view for NFP, please do your own research and analysis to make an informed decision on the markets. It is not recommended you try to trade the event if you have less than 6 months trading experience and have a trusted risk strategy in place. The markets are extremely volatile, and these events can cause aggressive swings in price.
For today’s NFP we’re going to keep the chart and idea clean and only look for extreme levels. Our daily bias and weekly bias targets are complete, yesterday we posted a higher level for our team and that was also completed this morning.
So now, we have the following levels in mind:
Resistance levels:
2173-5 and above that 2180-85. These levels we feel if price attacks could give us a reaction in price if rejected and not broken. For that reason, a test on the level is potentially available but we wouldn’t really want to long up into these levels unless we get a very deep pullback!
Support levels:
2150-47 unless broken can take us up into those levels before a reaction, however, with the volume that enters the markets, it can make this a difficult trade. Hence, the levels below 2140-44 can then bring us back into the order region to then start a small range. Below that have 2130, which if attacked is our ideal level for a tap and bounce, but only for the scalp.
Price breaks above the higher resistance, we're not interested and will come back next week.
We’re very likely not going to be trading this event, rather watching and letting the price settle before we decide on our move. It can be volatile and extreme and we need you to understand, if they break above that 2085 level they’re going to complete the structure without any pullbacks. New traders and those less experienced, please stay out of the markets, money in your account is a position in the markets!
Please do support us by hitting the like button, leaving a comment, and giving us a follow. We’ve been doing this for a long time now providing traders with in-depth free analysis on Gold, so your likes and comments are very much appreciated.
As always, trade safe.
KOG
Undervalued Dollar? Democrats' Influence on Rate Cut PlansUndervalued Dollar? Democrats' Influence on Powell's Rate Cut Plans
Federal Reserve Chair Jerome Powell is scheduled to present his semi-annual monetary policy testimony to the House and Senate starting this Wednesday. The market will be looking for Powell to provide a more specific timeline for interest rate cuts.
Currently, the market is pricing in three interest rate cuts by the Federal Reserve this year, with the first expected in June. However, the market is likely to be disappointed, with Powell keeping tight-lipped and echoing the sentiments of other Fed officials, suggesting that the first rate cut may occur "later this year."
Although the market might be disappointed by the lack of a clear timeline, it will likely take no news as good news though and have no reason to amend their forecast to any time later than June. This could be undervaluing the US dollar, as the market overlooks “higher for even longer”. When the market finally comes to terms with this, targets for a stronger USD could include those levels designated on the chart.
What could break Powell's tight lips is pressure from Democrats, who could advocate for interest rate cuts to support the strength of the economy in an election year.
Sell Stop 2/14/24 Honest opinion is the dollar continues to rally after its big move yesterday. In this case I'll only be looking to place a pending order after 0845EST for the sell stop at 1986.
Keep in mind things may change from now to 0845, if it does ill add it in the comments section.
How to make 20k in less then 5 daysWhat an impressive kickoff to the year! Despite the stock market's initial decline, largely attributed to tax harvesting and rebalancing, I still anticipate a substantial influx of funds returning to the market.
This year is poised to be another double-digit growth period for equities. If one selects the right stocks, the potential for triple-digit account growth remains on the table.
Turning to FX:EURUSD , the year started with the expected volatility, driven by a one sided trade, institutions short on the DOLLAR and favoring other currencies particularly the EURO. Any new data would cause an unwiding of their trade and more then average volatility.
In anticipation of potential market movements, I shared two trades with my community just before the market open on Monday night.
1. Trade Idea #1 (Rating: 2.5 out of 5)
Synopsis: The Fed minutes, scheduled just before the US close, may echo previous speakers' dismissal of imminent rate cuts.
Trade - SHORT (this is protection, we are not going to profit from this)
Position - 1.10300
Take Profit (TP) : NON
SL Break-Even, or 1.1100.
2. Trade Idea #2 Rating 3.5 out of 5
Synopsis We are looking to capture any weakness from technical and fears of any messaging from the minutes.
Trade - LONG, (ideally the size of this trade is equal to the short above, our risk is neutral until the Short BE hits)
Position - anywhere near low 1.09xx or anywhere in US Open. We will not force the trade. We then wait for Jobs data
TP - 1.15xx (we will add to our position in increments)
SL - NON - Our short will hedge our long, and will remain in this position until our short hits BE, securing our profits
These trades successfully capitalized on early-day volatile movements. The EUROZone PMIs on the 4th Jan further reinforced our short bias:
Ireland: 51.5 (2 months low)
Spain: 50.4 (5 months low)
Italy: 48.6 (3 months low)
Germany: 47.4 (2 months low)
France: 44.8 (3 months low)
However, positive monthly PMIs from France and Germany altered our outlook, ruling out a 'Deflation' scare. The Fed minutes, leaning towards a conservative stance with no mention of rate cuts, allowed EURUSD to hit 1.09100, aligning with our second trade idea and securing profits.
Analyzing the EURO volatility index (EVZ inverted) revealed volatility having peaked and reducing, indicating towards a stronger EURO.
On NFP day we remained focused on adapting our trades to incoming data.
Upon reviewing the data release, I observed that while the headline figure surpassed expectations, there was a revision of -71k jobs from the preceding months. If this trend persists, it could result in negative job growth in the upcoming months. Additionally, a cause for concern was the 4.1% increase in hourly average pay, attributed to the holiday season dynamics. The report acknowledged that individuals typically do not face job terminations before Christmas, and many receive one-time bonuses during this period, introducing significant noise into the analysis. As a consequence, the price action exhibited heightened volatility during this phase. Once the market understood the data, we saw a reversal in the price action.
Although my profits were secured, we had one more data released left for the day, and as per my plan I wouldn't hesitate to restructure my trades if new data contradicted my trade ideas.
The week's final data point, PMI services (ISM service: 50.6, Prior: 52.7), hinted at a soft side for the Dollar, reinforcing the bearish dollar stance. Services were on the brink of contraction, raising concerns about job sustainability at the current interest rates. The question i would put to the fed, at what point do employers continue to fund jobs through their savings or do they start cutting jobs to save their margins. I think the fed knows this answer!
In contrast to 2023, during which I accumulated trades and expanded my equity holdings, this year, my primary objective is to secure profits and minimize the holding period. The current market situation is marked by uncertainty, generating substantial volatility and potential drawdowns. Consequently, I am prepared to promptly close positions at a loss, prioritizing a data-driven approach to trades over reliance on technical analysis. I anticipate an almost 16% move on EURUSD this year, and this will be extremely volatile compared to the more subdued move of only 4.33% in 2023
As a reminder for new to the market, consistent explanation and adherence to a trading plan are crucial. If you follow traders who only give a buy or short signal with no fundamental explanation then this not sustainable way of trading and those follows should be avoided. As is overtrading, this is a detrimental habit and this is one of the single reason why retail traders incur more losses then they should, new traders should exercise extreme caution.
A final point to note; July is a crucial period for Powell and the fed, akin to NEMO. If they haven't finalized their entire fed cut by then, accusations of political interference favoring Biden and Yellen may surface. Powell has adeptly steered the economy from double-digit inflation to nearly 2%, all without causing a surge in unemployment. As the only Federal Reserve chair in history to achieve this feat, I believe Powell is unlikely to jeopardize his legacy to assist Biden's electoral prospects. Instead, his legacy will form a part of the establishment in the form of a library or a policy named after him. Historians will look to Powell for inspiration when they have to overcome future inflation. Well done Fed Chair!
As always, Links to my verified P&L and Community is available in my signature.
Good hunting traders
Macro Monday 25~The Feds Inflation Barometer – Core PCE Macro Monday 25
The Feds Favorite Inflation Barometer – Core PCE
The US Core Personal Consumption Expenditures (PCE) are released this Friday 22nd December 2023. Currently Core PCE is the most important component to the Federal Reserve in making their interest rate decisions and thus it will provide a great insight into what lies ahead in terms of interest rate policy for Q1 2024.
Known as the Federal Reserve’s favorite gauge for inflation, Core PCE is a crucial economic indicator that provides insights into the general trend in consumer spending (it excludes the more volatile energy & food costs).
Jerome Powell
“I will focus on core PCE inflation, which omits the food and energy components.”
25th Aug 2023
The Bureau of Economic Analysis (BEA) compiles and publishes the Core PCE report which is considered a more comprehensive measure of general trends in consumer spending than some other indicators, such as the Consumer Price Index (CPI).
We will briefly cover the differences between CPI and PCE which will eventually lead us to why specifically the Core PCE is the preferred barometer for inflation (over headline and core CPI and over headline PCE).
Stick with me here and lets have a look at CPI vs PCE first…
CPI Vs PCE - Main differences?
Consumer Price Index: CPI is a metric that follows a fixed basket of goods. This fixed basket of items is measured month to month providing a consistent “basket of goods” cost for the common urban consumer. This allows for the basket of items to remain relatively unchanged thus providing an indication of how costs may be increasing or decreasing for the common consumer using the said basket (the basket is updated but not a frequently as the PCE basket).
Personal Consumption Expenditures: PCE includes a broader range of goods and services, and it is based on more frequent updates to the basket of goods and services that represent consumer spending, thus PCE captures more of the trend or trend changes in consumer spending. PCE includes expenditures on durable goods (e.g., cars and appliances), nondurable goods (e.g., food and clothing), and services (e.g., healthcare and education). This breakdown provides insights into which sectors of the economy are experiencing changes in consumer spending. We covered Durable Goods in a prior Macro Monday (I will link same under the published version on my TradingView). The bottom line on PCE is that it is more broader and more consumer led report thus arguably providing a more accurate indication of the wider spending habits of the consumer
Headline Vs Core (for both CPI and PCE)
In general Headline CPI and Headline PCE have an all-encompassing basket of goods and services included whilst Core CPI and Core PCE focus on a subset by excluding the volatile components of food and energy.
Analysts and policymakers often consider both Headline and Core to gain a comprehensive understanding of inflation trends, however Core PCE in particular provides the deepest and broadest insights into consumer led spending habits and provides the true underlying inflation by removing volatile commodities (Food & Energy). Lets look at CORE PCE a more closely
What is the benefit of excluding food and energy from inflation figures for Core PCE and why is this so beneficial?
1. Reduced Volatility: Energy and food prices are known to be more volatile and subject to temporary fluctuations due to factors such as weather conditions, geopolitical events, and supply chain disruptions. By excluding these components, Core PCE aims to provide a more stable measure of inflation.
2. General Inflation Trend Focus: As noted above, the short-term volatility in energy and food prices can mask the underlying aggregate trend in other goods and services, so the PCE eliminates some of this short term noise from food and energy inflation figures.
3. Captures Persistent Underlying Inflation Forces: Core PCE filters out the impact of temporary shocks to energy and food prices. This can be valuable for assessing whether inflationary pressures are becoming ingrained in the economy in the general sense.
4. Long Term Planning for the Consumer and the Fed: Understanding the underlying inflation trend is crucial to knowing the base level of the cost trend. Core PCE can provide a more reliable gauge for long-term economic planning by smoothing out short-term fluctuations.This provides investors, consumers and the Fed with a sort of long term general expenditure based moving average (the Core PCE) for the underlying inflation burden that is trending in an economy. All three participants can make the necessary adjustments to cater to this long term trajectory and thus the metric is a powerful tool for all involved.
Now that we know why the PCE is such a useful metric we can have a look at the long term PCE chart and see how things have been trending.
For the record CPI already came out for the month of November as CPI is typically released mid-month whilst PCE is released towards the end of the month.
Remember we will have an update this Friday from the BLS on the November readings for Core and Headline PCE, so we can see how we are looking then.
The Core and Headline CPI Chart
This CPI chart illustrates the following:
▫️ You can clearly see how Core CPI is less volatile than Headline CPI. As discussed above, Core CPI removes the volatile food and energy expenditures to provide a more general view of underlying inflation (based on a fixed basket of goods)
▫️ It is clear that we are not at the Federal Reserves target of 2% which is also outlined on the chart (purple line). It is critical to understand that we are still not at or below the target 2% level regardless of the FOMC’s determination of a likely hold on interest rates and reductions to interest rates in 2024. Lets see can the target be met first.
▫️ You can see that since 2002 Core CPI has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardized zone between 1 – 3%.
The Core and Headline PCE Chart (SUBJECT CHART AT TOP PROVIDED TODAY)
(will be updated this with newly released figures this Friday 22nd Dec)
This CPI chart illustrates many of the same findings from the CPI chart above:
▫️ Core PCE provides the deepest and broadest insights into consumer led spending habits versus a more fixed and stringent basket of goods for CPI, making Core PCE the Feds favorite inflation barometer to watch.
▫️ You can clearly see how Core PCE is less volatile than Headline PCE. As discussed above, Core PCE removes the volatile food and energy expenditures to provide a more general view of underlying inflation (based on a fixed basket of goods).
▫️ It is clear that we are not at the Federal Reserve’s target of 2% which is also outlined on the chart (purple line). The Federal Reserve have advised that Core PCE is expected to decline to 2.2% by 2025 & finally reach its 2% target in 2026. Anything that happens to interfere with this between now and then will need to be addressed by the fed.
▫️ You can see that since 1991 Core PCE has fluctuated one standard deviation above and below the 2% inflation level between 1% and 3%. It is clear that we are not back into this standardized zone between 1 – 3%.
Summary
You can visualize on the charts why the Core CPI and Core PCE is more important to Chair Powell, both Core metrics on the charts are almost like a slower moving average providing an indication of the longer term inflation trend. Right now Headline metrics are diving down past the Core metrics and the Federal Reserve cannot just take that volatile headline figure to make long term decisions. The Core PCE/CPI provides the long term trend trajectory whilst the Headline can offer early/lead signals of the direction of inflation, however core must be observed to determine the resilience of the long term trend. Furthermore, Core PCE is perceived by the FED as having more value as it has its finger on the pulse of the consumers spending habits by covering a broader range of expenditures whilst also accounting for consumer led spending trends. The CPI basket of goods in more fixed/restricted in terms of the goods it accounts for. This is why the FED values Core PCE so highly as a versatile and all encompassing gauge of inflation.
Hopefully you’ve come away today with a greater understanding of why the Core CPI and PCE data is preferred by the Fed ahead of headline inflation and also why the Core PCE comes out ahead as the chosen long term inflation gauge.
Any questions or observations, please throw them into the comments and I will be onto them as quickly as possible,
Thanks for reading,
PUKA
Euro climbs to two-week high as ECB meeting loomsThe euro has extended its gains in Thursday trading. In the European session, EUR/USD is trading at 1.0925, up 0.45%. It has been a good week for the euro, which has climbed 1.5% against the US dollar.
The European Central Bank meets later on Wednesday and is widely expected to hold rates at 4.0% for a second straight time. The markets will be focusing on the rate statement and ECB President Lagarde's post-meeting remarks. Lagarde has been hawkish, stressing the need to maintain rates in restrictive territory for a prolonged period - "higher for longer".
The markets are more dovish and have priced in six rate cuts for 2024, with a first cut as early as the spring. The economic landscape in the eurozone could support the market's view. Inflation has fallen sharply and is at 2.4%, within striking distance of the Bank's 2% target. The economy has cooled due to high interest rates and a recession remains a possibility.
Will Lagarde push back against market expectations of rate cuts? Or will she set a more dovish stance and avoid ruling out rate cuts? The tone of the rate statement and Lagarde's comments could have a strong effect on the movement of the euro today.
The Federal Reserve maintained the benchmark rate at a target range of 5.25%- 5.50% for a third straight time. That was not a surprise but Fed Chair Powell provided plenty of drama as he pivoted from his usual hawkish rhetoric. There had been expectations that Powell would push back against growing speculation that the Fed would trim rates in 2024. Powell not only failed to push back, he signalled that the Fed expected to cut rates three times next year.
Powell's dovish message sent equities flying higher and the US dollar tumbling. Just two weeks ago, Powell said it would be "premature" to speculate about the timing of rate cuts and that the door was still open to further hikes. There is still a deep disconnect between the markets and the Fed, as the markets have now priced in six rate cuts in 2024.
There is resistance at 1.0964 and 1.1033
1.0862 and 1.0793 are providing support
Get ready for the FOMC and Jerome PowellWith the SPX trading just about 3.8% from its all-time highs, all eyes will be on the Federal Reserve, which is scheduled to announce a monetary decision later today, followed by a press conference. We do not anticipate any change to the FED Funds Rate as we expect the central bank to take additional time in order to assess the lagging effects of previous rate hikes. During the press conference, we expect Jerome Powell to outline a surprisingly strong labor market and resilient parts of the economy in spite of rising living costs and debt servicing. In some remarks, the chairman will likely admit that a great deal of a job has already been done, but there is still more to do, with inflation being far from the 2% target. Overall, the conference’s tone will likely be carried in the well-known fashion of “higher for longer” and lack of clarity on steps toward easing. We will provide a review of what was said after the conference.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Post FOMC AnalysisDid the federal reserve just set the tone for 2024?
- done with the rate hike regime
- wait for a bit more evidence on inflation
- switch rate cut policy
With a decision in March/May still looking the most likely for now, are we going to see more downside on the DXY
In the technical aspect
- Price reversed from resistance of 104.30
- Currently resting along support of 102.50 which coincides with the 61.8% fibonacci retracement level
- Next major support level at 99.75, with interim support at 101
NZD/USD slips ahead of GDP, Fed meetingThe New Zealand dollar is sharply lower in Wednesday trade. In the European session, NZD/USD is trading at 0.6095, down 0.61%.
US inflation ticked lower in October as expected and the release was a non-event for the markets, which slightly reduced their rate-cut pricing. Headline CPI climbed 3.1% year-on-year in November, down from 3.2% in October and in line with the market estimate of 3.1%. Core CPI, which is considered a more reliable gauge of inflation trends, climbed 4.0% year-on year in November, unchanged from October. This matched the market estimate of 4.0%.
On a monthly basis, both CPI and Core CPI ticked higher. CPI came in at 0.1%, up from 0.0% in October and the core rate also rose from 0.2% to 0.3%. Both readings matched the market estimates. A decline in gasoline prices helped pull down inflation. However, a wide range of goods and services experienced price increases, suggesting that underlying inflation remains sticky.
Today's FOMC meeting could provide clues as to what the Fed has in mind in the New Year. The markets have priced in a pause today at close to 100%, so the focus will be the rate statement and Jerome Powell's post-meeting press conference. If Powell is hawkish and pushes back against rate cuts, it could force the market to again reduce rate cut expectations.
New Zealand releases GDP for the third quarter on Thursday, with expectations for a weak gain of 0.2% q/q, compared to a sharp gain in Q2 of 0.9%. On an annualized basis, the market consensus stands at 0.5%, following a 1.8% gain in the second quarter. An unexpected reading could have a strong impact on the direction of the New Zealand dollar.
NZD/USD is putting pressure on support at 0.6076. Below, there is support at 0.6031
There is resistance at 0.6150 and 0.6195
THE KOG REPORT - NFPKOG REPORT – NFP:
This is our view for NFP tomorrow, please do your own research and analysis to make an informed decision on the markets. It is not recommended you try to trade the event if you have less than 6 months trading experience and have a trusted risk strategy in place. The markets are extremely volatile, and these events can cause aggressive swings in price.
Quick NFP Report today with the levels to look for a reaction in price. Would say we're only looking for one move, that's down into the support regions before capturing a potential tap and bounce back up. If price does go up, we'll be sitting and waiting for the order region to break and then assess the price action over the weekend before then making a plan which we will share on the KOG Report.
Key levels:
Support – 2000-05 and below that 1975-80.
Resistance – 2035 and above that 2055, break above we’ll be on for targeting that wick.
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As always, trade safe.
KOG
