US Inflation Ignites: Is the Fed’s June Meeting ‘In Play’?

May 18, 2016

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US Inflation Ignites: Is the Fed’s June Meeting ‘In Play’?:
Weak inflation in the Australian economy may have been the major talking point over the last couple of weeks, but across the Pacific, last night’s reading shows that the US is having no such problems.

“USD CPI m/m (0.4% v 0.3% expected)”

The April US inflation reading of +0.4% compared to the 0.3% expected, while simply just beating surveyed expectations, was actually also the fastest monthly increase in over three years!


A huge contributing factor to the reading has been the recent Oil price rally off its lows within a steep bullish channel, which began back in February. I read this morning that the rally has seen Petrol prices here jump 8.1% since the lows. Ouch!

OIL 4 Hourly:
Click on chart to see a larger view.

This pick-up in the inflation reading has put the Fed back on notice for further rate hikes in 2016, and both Atlanta Fed President Lockhart and San Francisco Fed President Williams chimed into the conversation last night. Both were once again spruiking the possibility of up to THREE rate increases in 2016.

I find this really interesting because after being so coy for so long, this didn’t seem like the ‘smoothest’ way to go about warning markets of their intentions heading forward. Something that to their credit, the Fed has actually been pretty good at in this cycle.

“(June) certainly could be a meeting at which action could be taken.”

– Williams

“I think the incoming data have actually been quite good and reassuring in terms of policy decisions, so, in my view, June is a live meeting.”

– Lockhart

While futures market pricing has a June hike barely a possibility at all (just 14% is currently priced in and that was after a jump!), it is this sort of rhetoric that has traders speaking up the possibility of the June FOMC meeting being in play.

If markets are underpricing the change, this is where the trading opportunity will lie for Forex and Indices traders.

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

With the US Dollar Index having bounced off support inside a longer term bullish trend, starting to think about how you could get on board a potential USD re-pricing across the Forex majors would be a wise move after today.

That 14% pricing surely isn’t going to last. Traders get itchy toes heading into meetings like this and for me, there is huge potential in some further re-pricing.


Charts of the Day:
With the risk of faster rate hikes by the Fed, comes stocks getting jittery about the costs of borrowing to invest becoming more expensive. This saw the S&P 500 now have the greatest of sessions overnight.

The charts back up the picture, with price pulling back off higher time frame resistance and opening up the possibility of further falls if earlier/faster rate hikes start to be priced in.

S&P 500 Weekly:
Click on chart to see a larger view.

S&P 500 Daily:
Click on chart to see a larger view.

Indices charts across the board have actually been capped by this weekly resistance level in the S&P 500 for a while. We’ve been following these levels for months, positioning for a breakout lower that never came back in January.

With the current narrative, longer term positioning for this break-out also offers some huge long term potential.

All something to consider!


On the Calendar Wednesday
NZD PPI Input q/q

GBP Average Earnings Index 3m/y
GBP Claimant Count Change

USD Crude Oil Inventories
USD FOMC Meeting Minutes

Keep an eye on the @VantageFX Twitter account as we look to share some possible intra-day buy levels on the Aussie Dollar pairs that fit in with the narrative above. Trade with leading ECN Forex Broker, Vantage FX by taking advantage of levels on your own live Forex account.

Dane Williams – @VantageFX

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