Today’s release of US inflation data should ease some anxiety off the Fed officials as it showed that consumer prices are increasing at a mild pace. The consumer price index rose 0.2% in April, less than the 0.3% expected by the market, and following a 0.3% increase in March. Core prices excluding food and energy costs, gained 0.1%, compared with a 0.2% gain the prior month. Food prices, which make up about a fifth of the CPI, gained 0.9%, the most since January 1990. The sluggish US economic growth has no doubt reduced consumers’ appetite for lifestyle goods and services, thus easing inflationary pressures. Even though gasoline prices fell 2% in April, we are seeing a steady rise in gasoline prices this month. The AAA said that the average cost of regular gasoline reached an all-time-high of $3.73 this week. Not to mention that crude oil prices are also notching new record highs now and then; in fact, Nymex crude oil reached a record $126.98 a barrel yesterday, so consumers are bound to be hit by rising energy expenses this month. Former Fed Chairman Alan Greenspan said yesterday via satellite to a conference in Singapore that fuel prices will keep on increasing because there is too little investment by oil companies in production and infrastructure to cope with higher demand.

April’s tame inflation data should give more room for the Fed to cut interest rates should it feel the need to do so, however, remarks made by several Fed officials in the past few days showed that they are concerned about keeping inflation down. Yesterday, San Francisco Fed’s Janet Yellen said the Fed can’t be “complacent about inflation”, and that recent measures of consumers’ outlook for prices “highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility”.

Dollar Can’t Keep Falling

The US dollar uptrend still remains intact, and could get a boost from comments by former Fed chairman Volcker who said Wednesday in Washington that although some dollar depreciation was needed, he doesn’t want the slide to get out of hand, and if there is a loss of confidence in the dollar, “we’re in trouble”. He also said there may be more inflation than is reflected in the CPI data.

Forex Trading

EUR/USD declined to a low of 1.5395, the expected support area around 1.5400, and then bounced almost 100 pips back up to 1.5490. Its support base is still around 1.5370. USD/CHF rose to 1.0600 and then retreated from there as it contemplates the resistance around 1.0630, a high reached last Thursday. If it could break above that level successfully, next bull target is possibly 1.0700-10. GBP/USD fell again today to a session low of 1.9360, a near 3-month low.

Thursday:

German CPI 0600 GMT

France GDP 0645 GMT

US Empire manufacturing, initial jobless claims 1230 GMT

US TICs 1300 GMT

US industrial production 1315 GMT

US Philly Fed 1400 GMT

New Zealand PPI 2245 GMT

Japan GDP 2350 GMT

Posted in Categories: Economy, Forex.

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