Sterling Skyrockets, Dollar Shrugs PCE Inflation

Market overviews

Sterling’s rally picks up some strong momentum in pre-holiday trading. Meanwhile, overall steady to risk-on sentiment is also lifting Aussie and other commodity currencies. On the other hand, Euro is under tremendous pressure, thanks to selloff against the Pound. Dollar, Yen and Swiss Franc are also soft, with the greenback shrugging off strong PCE inflation data.

Technically, the rallies in both GBP/USD and GBP/JPY carry some significance. Firstly, GBP/USD’s break of 1.3373 suggests that 1.3164 medium term fibonacci support was well defended. Similarly, GBP/JPY’s break of 152.60 also argues that it has already defended 148.93 structural support and 55 week EMA. Both pairs could be setting up the stage for near term bullish trend reversal. But of course, we’ll need to see if momentum could sustain after holidays.

In Europe, at the time of writing, FTSE is up 0.19%. DAX is up 0.62%. CAC is up 0.40%. Germany 10-year yield is up 0.0218 at -0.270. Earlier in Asia, Nikkei rose 0.83%. Hong Kong HSI rose 0.40%. China Shanghai SSE rose 0.57%. Singapore Strait Times rose 0.30%. Japan 10-year JGB yield rose 0.0033 to 0.067.

Merry Christmas to our readers. We’ll be back on Dec 28.

US PCE inflation rose to 5.7% yoy, core CPI to 4.7%, highest since 80s

US personal income rose 0.4% mom mama, or USD 90.4B in November, matched expectations. Personal spending rose 0.6% mom or USD 104.7B, also matched expectations.

Headline PCE price index accelerated to 5.7% yoy, up from 5.1% yoy, above expectation of 5.6% yoy. That’s the highest level since 1982. Core PCE price index accelerated to 4.7% yoy, up from 4.2% yoy, above expectation of 4.5% yoy. That’s the highest level since 1989.

US durable goods orders rose 2.5% in Nov, ex-transport orders up 0.8%

US durable goods orders rose 2.5% mom to 268.3B in November, above expectation of 2.5% mom. That’s also the sixth increased of the last seven months.

Excluding transportation, new orders rose 0.8% mom, above expectation of 0.6% mom. Ex-defense orders rose 2.0% mom. Transportation equipment rose 6.5% mom.

US initial jobless claims unchanged at 205k, matched expectations

US initial jobless claims was unchanged at 205k in the week ending December 17, matched expectations. Four-week moving average of initial claims rose 3k to 206k.

Continuing claims dropped -8k to 1859k in the week ending December 11. Four-week moving average of continuing claims dropped -49k to 1920k. Both are the lowest since March 14, 2020.

Canada GDP grew 0.8% mom in Oct, 0.3% mom in Nov

Canada GDP grew 0.8% mom in October, matched expectations. Goods-producing sector rose 1.6% mom while services-producing sector rose 0.6% mom. 17 of 20 industrial sectors posted gains.

According to advance information, GDP increased 0.3% in November, led by accommodation and food services, wholesale trade, construction and the arts and entertainment sectors, while the mining, quarrying, and oil and gas extraction sector offset some of the gains.

Japan raises fiscal 2022 GDP growth forecast to 3.2%

Japan’s government slashed the current fiscal 2021 real GDP growth forecast from 3.7%, down from 2.6% as estimated in July. However, for fiscal 2022 starting April, real GDP growth forecast was upgraded from 2.2% to 3.2%. That would be the fastest growth rate since fiscal 2020 with GDP hitting a record JPY 556.8T.

“The economy has shown signs of picking up, so we must ensure the current positive momentum moves to sustainable economic recovery,” a Cabinet Office official told reporters. “We have not yet reached autonomous growth but we’re making steady progress to generate a virtuous cycle of growth and wealth distribution.”

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3276; (P) 1.3320; (R1) 1.3398; More…

GBP/USD’s rebound from 1.3158 resumes today by breaking 1.3373 and hits as high as 1.3434 so far. Intraday bias is back on the upside. Sustained trading above 55 day EMA (now at 1.3423) will be an early sign of bullish reversal. That is, correction from 1.4248 might have completed with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Further rally would be seen to 1.3570 support turned resistance next. On the downside, break of 4 hour 55 EMA (now at 1.3283) will turn focus back to 1.3164 instead.

In the bigger picture, focus remains on 38.2% retracement of 1.1409 to 1.4248 at 1.3164. Sustained break there will argue that whole rise from 1.1409 has completed at 1.4248, after rejection by 1.4376 long term resistance. That will revive some medium term bearishness and and target 61.8% retracement at 1.2493. However, strong rebound from current level will revive argue that up trend from 1.1409 is still in progress, and probably ready to resume.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
13:30 CAD GDP M/M Nov 0.80% 0.80% 0.10%
13:30 USD Initial Jobless Claims (Dec 17) 205K 205K 206K 205K
13:30 USD Personal Income M/MNov 0.40% 0.40% 0.50%
13:30 USD Personal Spending Nov 0.60% 0.60% 1.30%
13:30 USD PCE Price Index M/MNov 0.60% 0.60% 0.60% 0.70%
13:30 USD PCE Price Index Y/Y Nov 5.70% 5.60% 5.00% 5.10%
13:30 USD Core PCE Price Index M/MNov 0.50% 0.40% 0.40% 0.50%
13:30 USD Core PCE Price Index Y/Y Nov 4.70% 4.50% 4.10% 4.20%
13:30 USD Durable Goods Orders Nov 2.50% 1.50% -0.40%
13:30 USD Durable Goods Orders ex Transportation Nov 0.80% 0.60% 0.50%
15:00 USD New Home Sales Nov 0.767M 0.745M
15:00 USD Michigan Consumer Sentiment Index Dec F 70.4 70.4
15:30 USD Natural Gas Storage -54B -88B