Soft PCE Boost Equity Market

• Soft PCE reading hammered the dollars strength and improved stock market performance.  

• Eye on todays U.K. and U.S. PMI readings. 

• Oil prices are expected to be hindered by the outcome of the OPEC meeting. 

Market Summary

The highly anticipated U.S. PCE, the Fed's preferred inflation gauge, met market expectations when released last Friday. This suggested a gradual slowdown in inflation and increased the likelihood of a Fed rate cut this year. As market sentiment shifted, the dollar's strength was hindered by dovish Fed expectations, while the equity market regained momentum. Notably, U.S. Nonfarm Payroll data is due this Friday, with both the dollar and stock market poised for direct impact from the jobs data. Additionally, the Bank of Canada and the European Central Bank are set to announce their interest rate decisions on Wednesday and Thursday, respectively, drawing the attention of forex traders. In the commodity market, gold prices remained flat despite a softer dollar, while oil prices faced strong downside pressure following the adverse outcome of the OPEC+ meeting, where the world's largest oil cartel outlined plans to phase out its supply cut policy in the fourth quarter of the year.

Current rate hike bets on 12nd June Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (99.9%) VS -25 bps (0.1%)

Market Movements

DOLLAR_INDX, H4

The U.S. dollar was hammered lower by the latest PCE reading, which showed signs of easing U.S. inflation. The Fed's preferred inflation gauge has fueled optimism about a potential Fed monetary policy pivot this year, pushing the DXY down below the 105 mark. Market participants are now looking to today's PMI readings to further gauge the direction of the dollar. 

The Dollar Index formed a lower, higher price pattern after hitting its weekly peak at 105.15, suggesting a bearish signal for the DXY. The RSI declined to below the 50 level after failing to break into the overbought zone, while the MACD is about to cross below the zero line, suggesting that bearish momentum is gaining. 

Resistance level: 105.25, 105.75

Support level: 104.00, 103.20

XAU/USD, H4

Gold prices have formed a subtle Head and Shoulders pattern and are currently facing strong selling pressure around the 2355 level. Despite last Friday's PCE reading coming in below expectations and easing the dollar's strength, gold prices failed to capitalise on the dollar's softening and declined alongside it. This indicates that demand for gold remains low.

Gold prices are trading sideways and gradually moving lower. The RSI has been keeping below the 50 levels, while the MACD is flowing flat below the zero line, suggesting that the bearish momentum is overwhelming. 

Resistance level: 2338.00, 2390.00

Support level: 2297.00, 2670.00

GBP/USD，H4

The GBP/USD pair remains in an upward trajectory as the UK's inflation rate shows signs of rebounding, with the latest CPI surpassing market expectations. The pair's movement today is likely to be influenced by the PMI readings from both the UK and the U.S., which are due later. Traders will be closely watching the release of these economic indicators to gauge their impact on the pair's direction.

GBP/USD is trading in a tight range, awaiting a catalyst to break its strong resistance zone near the 1.2760 level. The RSI has rebounded and surpassed the 50 level, while the MACD hovers closely toward the zero line, suggesting fresh bullish momentum may be forming. 

Resistance level: 1.2760, 1.2850

Support level: 1.2660, 1.2600

EUR/USD，H4

The Euro recorded a marginal gain against the U.S. dollar in the last session, as the dollar was weighed down by a weaker-than-expected PCE reading. This week, the focus will be on the ECB's interest rate decision, which is set to be announced on Thursday. Notably, the eurozone CPI reading exceeded market expectations, coming in at 2.6%, which adds uncertainty to the ECB's decision and its subsequent impact on the Euro's direction. 

The EUR/USD is facing strong selling pressure at the near 1.0880 level and is awaiting a strong catalyst to break above this level. The RSI has rebounded, while the MACD is crossing above the zero line, suggesting that bullish momentum is gaining. 

Resistance level: 1.0865, 1.0920

Support level: 1.0735, 1.0650

USD/CAD，H4

The USD/CAD pair has formed a double-top price pattern and is currently trading near its crucial support level of around 1.3600. The U.S. dollar has been lacklustre, particularly after last Friday's weaker-than-expected PCE reading. Meanwhile, the Bank of Canada is set to announce its interest rate decision on Wednesday, which could significantly impact the pair.

The pair has formed a double-top price pattern, suggesting a bearish signal. The RSI is declining toward the oversold zone, while the MACD has crossed below the zero line, suggesting strong bearish momentum. 

Resistance level: 1.3740, 1.3825

Support level: 1.3540, 1.3460

Dow Jones, H4

U.S. equity markets rebounded strongly last Friday, with the Dow leading the charge, gaining over 500 points. This surge was primarily driven by a shift in market sentiment and an improved risk appetite. The weaker-than-expected U.S. PCE reading fueled optimism about a potential Fed rate cut in the near term, favoring the risky asset market. Traders will be eyeing today's PMI readings, which could further influence the direction of the Dow.

Dow Jones surge strongly from its consolidation range suggests a potential trend reversal for the Dow. The RSI broke out from the oversold zone while the MACD has crossed at the bottom suggesting the bearish momentum has vanished. 

Resistance level: 39185.00, 39850.00

Support level: 38550.00, 37740.00

USD/JPY, H4

The USD/JPY pair continues to hover near a critical zone, prompting caution among market participants regarding a potential intervention from Japanese authorities. The pair's upward momentum has been tempered by the soft PCE reading released last Friday, keeping it below the 157.50 level. Additionally, market attention is focused on tomorrow's Japan 10-year JGB auction, which could impact Japanese bond yields and the strength of the yen.

The USD/JPY pair is supported at above 157.00 and remains trading within its upward trajectory. The RSI eases while the MACD is on the brink of crossing below the zero line, suggesting that the bullish momentum is easing. 

Resistance level: 157.00, 159.50

Support level: 156.60, 155.00

CL OIL, H4

Oil prices have declined for three consecutive sessions after reaching their highest level in May. Over the past weekend, OPEC+ held a meeting on oil supply issues, and the outcome fell short of market expectations, potentially putting further pressure on oil prices in the coming week. The OPEC+ decision to phase out its supply cut policy in the fourth quarter of 2024 was unexpected by the market. However, oil prices received a slight boost from the anticipation of a potential rate cut by the Federal Reserve, following the lower-than-expected PCE reading released last Friday.

Oil prices declined nearly 5% from their recent high. Bearish momentum seems strong, with the RSI heading to the oversold zone and the MACD crossing below the zero line. 

Resistance level: 78.35, 79.95

Support level: 76.90, 75.55