Market Update: PCE Inflation, USDJPY, and US Economic Data Impact

PCE Inflation vs. CPI: The Fed's Guiding Star The release of the Personal Consumption Expenditures (PCE) inflation report has sent ripples through the markets. PCE inflation, second in importance only to the Consumer Price Index (CPI), is closely monitored by the Federal Reserve. In September, the Core PCE, a measure that excludes volatile food and energy prices, held steady at 0.3% month-on-month, aligning with expectations. However, the headline PCE inflation accelerated to 0.4%, surpassing the 0.3% estimate. The PCE index considers shifts in consumer spending patterns more dynamically than the CPI, which makes it a more accurate gauge of inflation's impact on consumers. This aligns with the Fed's dual mandate of maintaining price stability and full employment. The initial reaction saw the dollar on an upward trajectory, but this bullish momentum waned after the PCE release. Notably, short-term bond yields dipped, with the two-year bond yield, a key benchmark for Fed policy expectations, falling by 3 basis points to 5.03%. USDJPY: A Complex Web of Factors The USDJPY pair has been in a state of decline, and the absence of widespread dollar weakness suggests that Yen-related factors may be at play. One potential factor is currency interventions by Japan, a nation that is known for its willingness to act to curb Yen depreciation. We observed a sudden bearish spike on Wednesday, which was just as quickly reversed:This signal, that Japan may not tolerate further Yen devaluation, could deter some speculators and draw demand for the JPY, pushing USDJPY down. With the risk of a substantial rise in US yields remaining relatively low, the 150 level on USDJPY may serve as a robust resistance point.US Economic Data: A Mixed BagWednesday brought a mixed bag of economic data from the US. Durable goods orders rose by a substantial 4.7% month-on-month, exceeding the 1.7% forecast, demonstrating robust demand for long-lasting goods. Additionally, GDP growth in the third quarter showed strength at 4.9% quarter-on-quarter, surpassing the 4.3% prediction. These figures buoyed expectations of a potential final rate hike by the Federal Reserve in the near future.However, there was some slack in the initial unemployment claims report, with the headline figure coming in at 210K, slightly above the 208K forecast. This discrepancy suggests that while GDP and durable goods data may have provided some momentum for the US economy, other indicators like the job market remain a point of concern. It's worth noting that the reaction of the dollar and bond yields to this positive data was relatively muted. The Forex market's response showed some volatility, but the dollar eventually moved lower. Bond yields, on the other hand, displayed almost no reaction to the positive data releases, highlighting the intricacies of market sentiment. Dollar's Technical ChallengeThe dollar faced a decline following the PCE data release, with the dollar index dropping from 106.70 to 106.35. From a technical standpoint, the price is poised for a crucial test of the upper bound of a flag pattern after a breakout on Wednesday. This level will serve as a support level. The ability of the price to stay above this line could serve as a confirmation for market participants that the bullish trend remains intact: