Monday, July 21, 2014

Inflation in the USA | RBA's Stevens speaks – and says little

Today at 12:30 GMT the Year-on-Year outcome for consumer inflation will be released in the US. Apart from jobs figures, with which they are closely linked economically, these have the greatest importance as an indicator of when the US Federal Reserve might embark upon raising interest rates. This, in turn, is crucial for the fate of the US dollar.

On the daily chart above, it can be seen that the EURUSD pair has been oscillating between the psychologically important 1.35 level and its 200 day Exponential Moving Average (EMA), waiting for direction. The fact that many market participants are enjoying the holiday season is probably one factor in this, but a rise in inflation later today will get people’s attention as it will indicate that the recent very good US job numbers just might be translating into a removal of the slack that has been seen in the economy. Such a thing would be bullish for the US dollar and therefore tend to send the EURUSD pair down through the support at 1.35. The bias, such as it is, is to the downside in any event.

Stevens speaks – and says little

All throughout the day yesterday, Monday, the Aussie dollar against the US dollar trended lower, as can be seen on the 30 minute chart above. There was a holiday in Japan, and that subdued trading somewhat, but the market was expecting the governor of the Reserve Bank of Australia (RBA), Glenn Stevens, to make a speech that would refer to the strength of the Aussie, in an attempt to reduce it.

In the event Mr Stevens apparently devoted his presentation to discussing, somewhat philosophically, the effectiveness or otherwise of Quantitative Easing in major economies, such as the US and Japan, before coming to the conclusion that it was far too early to say whether or not it had worked at all in those countries, and others.

At the start of the Asian session last night, the market reacted to the absence of any negative “jawboning” on the Aussie, and sent it right back up again against the US dollar.

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