Inflation, Inflation, Inflation
Joe Perry October 29, 2021 3:58 PM
As inflation data continues to remain excessively high in the around the world, central banks are struggling to justify that a majority of the inflation is transitory
Although Christine Lagarde seemed to mince words at yesterday’s ECB press conference following the Monetary Policy meeting, one thing was for sure: Inflation was the focus of the ECB’s meeting! Earlier, the EU released its CPI Flash for the month of October. The headline YoY print was 4.1% vs 3.7% expected and 3.4% last. This was the highest reading since July 2008. The core CPI YoY, which excludes food and energy, was 2.1% vs an expectation of 1.9% expected and 1.9% in September. This was the highest reading since December 2002. Thus, the ECB was correct to be worried about inflation!
The ECB isn’t the only one’s who are concerned about inflation! The US Fed meets next week, and inflation is sure to be a hot topic as the Fed has all but directly stated they will announce the beginning of tapering their bond buying program at this meeting. The Fed’s favorite measure of inflation, Core PCE, was released today for September. The YoY print was 3.6% vs 3.7% expected, and 3.6% in August and July. This is an indication that inflation may be stabilizing! Although it missed slightly, it is sill much higher than the Fed would like it. The headline print YoY was 4.4% vs 4.4% expected and 4.2% in August. While we’re on the topic of inflation, we should also point out that the Employment Cost Index QoQ for Q3 was 1.3% vs and expectation of 0.9% and 0.7% in Q2.
After the ECB meeting, EUR/USD went bid, up 75 pips on the day and closing at 1.1692. The pair was halted at the 50 Day Moving Average and a downward sloping trendline dating back to May 26th! After the US PCE data was released, it was the US Dollar’s turn to go bid, which pulled EUR/USD lower. If EUR/USD closes today below 1.1595, the candlestick pattern would be a bearish engulfing pattern, which is a reversal pattern. It could lead to a test of the 15-month lows at 1.1525. Support is at yesterday’s lows of 1.1582 and then the lows of October 12th at 1.1525. Just below there is the 161.8% Fibonacci extension from the August 19th lows to the September 3rd highs at 1.1515, and horizontal support dating back to March 2020 at 1.1495. Resistance is at the confluence yesterday’s highs, and the previously mentioned 50 Day Moving Average and downward sloping trendline between 1.1692 and 1.1705.
Source: Tradingview, Stone X
As inflation data continues to remain excessively high in the US, Europe, and around the world, central banks are struggling to justify that a majority of the inflation is transitory. But at the end of the day, the currency that will be the least volatile will be the one with a central bank who can control inflation expectations the best!
Learn more about forex trading opportunities.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.