Source: Jin10 Data

The US will release the June Personal Consumption Expenditures (PCE) Price Index report at 20:30 Beijing time on Friday. The market expects the PCE report to show that inflation is still under control.

Analysts' consensus expectations are that falling gasoline prices will pull down overall inflation readings, while moderation in housing and medical services prices will help further slow core PCE.

Analysts said that several months of encouraging inflation data have helped to strengthen the Fed's confidence in controlling inflation, which is what investors hoped for as they expected it to pave the way for at least one rate cut this year.

According to FactSet's consensus estimate, economists predict that the overall PCE price index in June will increase by 0.08% month-on-month and 2.5% year-on-year. The index remained unchanged in May. Economists expect the core PCE index, which excludes food and energy price fluctuations, to increase by 0.10% month-on-month and 2.5% year-on-year.

Much of the basic data for the June PCE report will come from the consumer (CPI) and producer (PPI) price index reports released earlier this month, so economists have been able to gain insights into the likely path of the data. Although the CPI report has received attention by its earlier release, the PCE report is the Fed's preferred inflation measurement standard. As part of its mission, the Fed aims to bring PCE inflation back to its target level of 2%, which analysts believe is a milestone the Fed is about to achieve.

Kathy Bostjancic, chief economist at Nationwide Mutual, said, "This will be a moderate reading." This is good news for the Fed. Continuing months of moderate inflation readings "completely dispel the inflation surge scenario we saw in the first quarter." She said, "We are likely to continue to see inflation slow down and get good readings in the coming months." Bostjancic expects the month-on-month growth rate in June to remain unchanged, with her forecast slightly lower than the consensus forecast of 0.08%, while the core index is expected to rise by 0.1%, the same as the consensus expectation.

Is housing inflation finally starting to moderate?

While falling gasoline prices will reduce overall inflation rates, Bostjancic said the Fed will pay more attention to core readings. She expects the goods category to continue to experience inflation slowdowns, while progress in housing inflation will correspond to CPI data released earlier this month.

She said, "The encouraging signs in CPI readings suggest that rent inflation and overall housing price pressures are easing," and sticky housing inflation has been one of the main factors pushing up inflation over the past year. Although some data on rent inflation suggests that this trend has eased, the slowdown in housing inflation in the CPI and PCE indexes has only recently emerged.

Bostjancic explained that data over the past few months "indicate that the actual rental inflation component in the CPI and PCE indexes has begun to catch up with what we have seen over the past few months in new leasing data".

Some components of PCE data may heat up in June. However, analysts are not worried about the risk of reigniting inflation. Bostjancic pointed out that asset management fees may rise due to the strong performance of the US stock market. She explains, "This actually reflects the good performance of the US stock market", rather than a true inflation signal.

Although June PPI was stronger than expected, Bank of America analysts pointed out that the components of the indices used to calculate PCE inflation were relatively weak. For example, prices of medical services and hospital services fell in June. Overall, Bank of America analysts expect the June PCE report to show that inflation meets the Fed's target of 2%. They wrote, "Overall, two months of inflation slowdown have returned to the right track."

When will the Fed cut interest rates?

The market is nearly fully priced in stable interest rates at the Fed's July meeting, with investors looking ahead to a rate cut in September or December. As of Wednesday, according to CME's Fed observation tool, the probability of a 25 basis point rate cut in September was about 90%.

Fed officials have repeatedly said they need more confidence in ensuring that PCE inflation is moving towards its 2% target before cutting interest rates. Bostjancic said that a PCE reading that meets expectations in June will "definitely increase and strengthen this confidence." If there are no adverse inflation readings before September, she said the Fed will be "ready to cut interest rates."

Expected interest rate target for the Fed's September meeting.

Gold Technical Analysis

According to FXStreet analyst Haresh Menghani, the price of gold has shown some resilience below the 50-day simple moving average (SMA), as the market expects the Fed to begin its rate-cutting cycle in September. This has kept the dollar below the two-week high it reached on Wednesday and helped attract some buying interest for gold. However, the upside seems limited as traders prefer to wait for PCE data, which will be released later on Friday, to get clues about the Fed's policy path. This could affect the demand for the dollar and provide new impetus for interest-free asset gold.

From a technical perspective, the price of gold has shown some resilience below the 50-day SMA for the second consecutive day on Friday and seems to have ended its two-day decline. Therefore, if the gold price further drops, there needs to be further selling pressure below the low volatility point of around 2353. At the same time, the daily oscillation indicator has just begun to show negative momentum, suggesting that the minimum path of resistance for gold price is downward.

Confirmation of a break below the 50-day SMA and subsequent break below support at 2350 is seen as a new trigger for put traders. The gold price may then attempt to challenge the 100-day SMA, currently located in the range of about 2325-2324. The latter should be a key turning point, and once broken, could open up levels below 2300.

On the other hand, any further rebound may attract new selling interest near the 2380 level. The next relevant resistance is in the range of 2391-2392, followed by the psychological level of 2400. If this level is broken, it could trigger a round of short covering and push gold price up to the weekly high of about 2432.

Editor / jayden