USD Higher on Friday Ahead of Core PCE

The US Dollar has continued to grind higher across the week with bulls seemingly undeterred by yesterday’s weaker-than-forecast adv GDP for Q1. At 2.7%, the reading was slightly below the market’s 2.9% forecast. Still, the greenback retained a bid tone across the day, bolstered by Wednesday’s hawkish FOMC minutes. Today, the focus shifts to the January core PCE index. With retail sales and CPI both having printed strongly for the month, expectations are geared towards the upside which should keep USD well supported into next week.

Key Factors for Today

• USD continues higher into the end of the week, core PCE on watch today
• Equities bounce back off yesterday’s lows
• Alibaba falls despite earnings beat
• USD leads in FX – AUD under pressure again
• JPY falls on dovish Ueda comments
• Metals slide lower – oil rebounds despite further EIA inventories surplus

Coming Up

• USD – Core PCE
• USD – UoM Consumer Sentiment
• USD – UoM Inflation Expectations

Stocks Bounce Off Lows

Equities markets saw mixed action yesterday with US stocks seen bouncing off the lows later in the day. Higher yields this week have posed a challenge to equities prices though, despite some declines across the middle of the week, most indices have rebounded into Friday. Data out of the UK and Eurozone this day painted a better consumer picture with UK and German GfK consumer confidence surveys seen rising sharply on the prior month. The Nikkei was seen rallying sharply too in response to comments from BOJ governor designate Ueda who said that he was in no rush to tightening monetary policy in Japan.

Alibaba Shares Fall Despite Earnings Beat

In the US earnings season landscape, the big news yesterday was the drop in Alibaba shares despite the group beating Q4 earnings forecasts. Alibaba posted higher EPS and revenues but stocks plunged over 6% after gapping higher at the open. The reaction appears to be in response to certain sections of the company’s business slowing as well as fears of

USD Rally Drags Risk FX Lower

The US Dollar is firmly back in the driving seat on Friday. The resurgent strength in the Dollar has taken a toll across higher yielding FX with AUD and NZD among the weakest performers today. JPY has been weaker also following comments from incoming BOJ chief Ueda who urged the BOJ to be creative with its monetary policy though said there was no rush to tighten policy, pushing back against the idea of imminent BOJ policy normalisation.

Metals Head Lower – Oil Recovering

In the metals and commodities space, both gold and silver remain under pressure into the end of the week. The grind higher in USD this week has seen both metals trading lower with risks of further losses if today’s core PCE beats forecasts. Crude prices are seeing better demand once again today, extending gains from yesterday’s session. The pickup comes despite the EIA reporting another huge weekly inventories build yesterday of over 7 million barrels, above the 2.6 million barrel surplus the market was looking for.