Inflation Limitation

August 11, 2015

Inflation Limitation:
The Fed speaker merry-go-round continued overnight with comments from both Fischer and Lockhart, speaking at the Federal Reserve Bank of Atlanta’s conference. It was Fed Vice-Chair Stanley Fischer that got the ball rolling in his opening remarks, bucking the recent trend and expressing his opinion that inflation might be too low to begin raising rates in September.

“The interesting situation in which we are is that employment has been rising pretty fast relative to previous performance and yet inflation is very low.”

“And the concern about the situation is not to move before we see inflation as well as employment returning to more normal levels.”

Is all that Fischer is trying to do here is talk down the fact that markets are becoming more and more under the impression that September is a done deal? These comments do seem to come across as nothing more than insurance.

Fischer did go on to say that a large part of the decline of inflation is temporary and has to do with the decline in the price of oil and raw materials.

“These are things which will stabilize at some point, so we’re not going to be as low as we are now forever.”

On the other hand, hawkish Atlanta Fed president Dennis Lockhart did nothing to pull back market expectations, insisting once again that September is in play. Lockhart largely repeated standard, past rhetoric but most importantly signalled a gradual nature of subsequent rate hikes.

“In my mind, gradual is going to mean something less frequent than every meeting.”

Again, pretty broad and nothing new but this is the key theme going forward.

USDX Daily:
usdx5
Click on chart to see a larger view.

Gold Daily:
gold4
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These largely mixed comments saw the USDX pull back and Gold rally, negating our aggressive Gold short continuation play from last week. However, with all major levels across both charts holding and nothing that the markets weren’t expecting coming out of the Fed, it all looks just a blip on the overall radar.

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On the Calendar Tuesday:
AUD NAB Business Confidence

EUR German ZEW Economic Sentiment

USD Prelim Unit Labor Costs

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Chart of the Day:
With NAB Business Confidence this morning, we take a look at AUD/USD undergoing a possible short term trend change.

AUD/USD 4 Hourly:
au3
Click on chart to see a larger view.

As we see so often, after 3 touches on upper trend line resistance, the 4th was the ‘kiss of death’ and we got the break out.

With a better than expected Business Confidence number out of Australia today, look for the key psychological 75c level to be broken and for price to hold above.

What are your thoughts on trading AUD/USD? Try a Vantage FX forex demo.

Dane Williams – @VantageFX

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