Hey everyone!
Let’s dive into the bigger picture—how global events, central bank decisions, and economic data shape the forex market. Macro trends can be tricky, but understanding them helps us make better trading decisions.
Let’s discuss and learn from each other!
Watch out! FED Worried about Inflation & Rates!
There is a possibility that the FED will keep interest rates at high levels if the US Economy in the future continues to strengthen and inflation remains high.
The implication to the market, if this happens, USD will strengthen, Gold-Shares-Crypto will potentially plummet…
CPI vs. PCE: Which Inflation Measure Matters More for Traders?
Next week, the Core PCE Price Index is set to be released, and it could be a major mover for the forex market. Since it’s the Fed’s preferred inflation gauge, traders will be watching closely for any signs that could influence interest rate expectations.
Inflation is one of the biggest drivers of market movements, and as traders, we constantly watch for key economic indicators to gauge where the market is headed. Two of the most important inflation reports in the U.S. are the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index. While both measure inflation, they are calculated differently and can sometimes send different signals.
What’s the Difference?
CPI is the more well-known of the two and is reported by the Bureau of Labor Statistics (BLS). It tracks the out-of-pocket spending of urban consumers on a fixed basket of goods and services, including housing, food, energy, and healthcare. The data comes from surveys and price checks across businesses, making it a direct reflection of consumer expenses.
PCE, on the other hand, is published by the Bureau of Economic Analysis (BEA) and covers a broader range of spending, including expenses paid by businesses and the government, such as employer-sponsored healthcare. It also adjusts for changes in consumer behavior, meaning it accounts for people switching to cheaper alternatives when prices rise, something CPI does not fully capture.
Why Does This Matter for Traders?
The Federal Reserve relies more on PCE when making monetary policy decisions because it is considered a more comprehensive and stable measure of inflation. This means that while CPI releases can cause short-term market volatility, PCE has a stronger influence on long-term Fed policy and interest rate decisions.
If CPI or PCE comes in higher than expected, it signals persistent inflation, which could lead to higher interest rates, strengthening the USD but pressuring stocks and gold.
If inflation is lower than expected, it increases the chances of rate cuts, which could weaken the USD and boost equities and commodities.
How Should Traders Use This Information?
While both CPI and PCE are important, it’s useful to keep an eye on how the Fed reacts to PCE trends rather than just trading the immediate CPI release. Understanding the differences between the two can help in anticipating market moves more effectively.
With Core PCE coming up next week, what are your expectations? Will it shift Fed rate cut projections? Let’s discuss.
Hello everyone
24 February 2025
The next focus for investors to keep EUR/USD bullish :
-How long it will take for the new government to be formed (the longer the process takes, the weaker the bullish momentum will be).
-Whether there will be a majority vote to support government spending through more debt or not (if the parliament approves increased spending using debt without prolonged discussions, EUR/USD may continue to strengthen. This is because Germany’s government spending has been heavily restrained in recent years, limiting economic growth).
USD/JPY Rebounds Amid U.S. Trade & Investment Policies
USD/JPY bounced back overnight, tracking a broader USD recovery, now trading near 149.77. The move follows:
-U.S. tightening investment & chip controls on China
-Trump reaffirming upcoming tariffs on Canada & Mexico
Technical Outlook:
-Bearish momentum remains, but signs of exhaustion
-Support: 149.20, 148.80, 147.00
-Resistance: 150.50, 151.50
Yield Spread Impact:
The narrowing U.S.-Japan yield gap supports a longer-term downside for USD/JPY. BoJ Governor Ueda reiterated that rate hikes remain possible if economic conditions improve.
Fed’s Barkin: Growth Holds Strong, But Inflation Risks Remain 
-The U.S. economy continues to grow steadily, with GDP rising 2.5% last year. Recession fears have eased, and strong consumer spending supports momentum.
-Inflation is cooling but remains above the Fed’s 2% target. The Fed’s preferred gauge, Core PCE, has declined but still requires close monitoring.
-Labor market remains strong with 4.0% unemployment, steady wage growth, and businesses adapting through automation. However, long-term risks like an aging workforce may push wages higher, adding new inflationary pressures.
-Caution is key! Barkin emphasized that monetary policy should stay restrictive to prevent an inflation resurgence. Cutting rates too soon could destabilize the economy.
The Fed will continue a “wait-and-see” approach, closely watching economic data before making any policy moves. Markets should prepare for a longer period of higher interest rates before any significant easing.