Dollar Extends Weakness after PCE, CAD Sold off from New 30 Yr High

The greenback resumes recent decline against European majors earlier today and remains weak after May PCE data. Both personal income and spending missed expectation by rising 0.4% and 0.5% respectively, comparing to expectation of 0.6% and 0.7%. More importantly, core PCE deflator, the Fed’s preferred gauge of inflation moderated further from 2.0% to 1.9% as markets expected, which is the first sub 2.0% reading since Feb 06. Though, overall inflation, as measured by the PCE deflator, rose 0.5%, fastest in 13 months. Chicago PMI and final University of Michigan consumer confidence will be released next in the US session but the greenback will likely remain weak unless we get really big surprise from these data.

USD/CAD spiked lower to new 30 year low of 1.0468 just before US session. However, the pair rebounds sharply higher for over 150 pts to above 1.0620 after disappointment from Canadian GDP which was flat in Apr comparing to expectation of 0.2% growth. The Loonie is also pressured on rumors of BoC checking rates.


Daily Pivots: (S1) 1.3422; (P) 1.3450; (R1) 1.3479; More

EUR/USD’s rally from 1.3262 finally resumes in early US session today by breaking through 1.3481 resistance, reaching as high as 1.3518 so far. At this point, intraday bias remains on the upside as long as 1.3481 resistance turned support holds. Next upside target will be 1.3553 resistance. Break will confirm underlying short term bullishness and bring retest of 1.3681 high. On the downside, touching of 1.3481 will turn intraday outlook consolidative first but Break of 1.3414 is needed to indicate rally from 1.3262 has finished. Otherwise, another rise is still expected after finishing consolidation.

In the bigger picture, strong rebound from 1.3262 has dampened the original bearish view, in particular with GBP/USD’s break of 1.9968, which corresponds to EUR/USD’s 1.3553, indicates some more dollar weakness should be seen in the short term. Note that with medium term rising channel remains intact, sustained break of 1.3553 will confirm fall from 1.3681 has completed and is merely a correction in the medium term up trend only, considering that it just met 100% projection of 1.3681 to 1.3391 from 1.3553 at 1.3263 with a 3 wave fall. A retest of 1.3681 would then be seen and the rebound from 1.3262 could extend further towards 61.8% projection of 1.2865 to 1.1.3681 from 1.3262 at 1.3766. But focus will remain on reversal signal as even in such case, the up trend from 1.1639 is still expected to conclude between 1.3668 and 1.3822.

On the downside, break of 1.3414 support will indicate the rebound from 1.3262 should have completed and put the immediate bearish scenarios back into focus. That is, rise from 1.2483 has completed at 1.3681, with bearish divergence condition in daily MACD and RSI. As discussed before, whole medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483, which is trended as resumption of up trend from 1.1639, is expected to terminate between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. With EUR/USD has already touched this resistance zone back in April, it’s also likely that the whole up trend from 1.1639 has completed at 1.3681 too. Focus will then be on medium term rising channel support (now at 1.3118) and next key cluster support at 1.3070 (50% retracement of 1.2483 to 1.3681 at 1.3082, 55 weeks EMA at 1.3078). Sustained break of this support zone will confirm that whole up trend from 1.1639 has ended and turn medium term outlook bearish.

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