The biggest worry to US consumers is higher prices for everything, so it should be a relief for them that the rise in US inflation may have peaked. For those of us who watch the Fed, the word transitory has become a word that could have plagued Jerome Powell if today’s data had been even 0.2% higher. For now, he has a get-out-of-jail pass, and September’s FOMC meeting will probably be a wait-and-see event.
According to the US Bureau of Labour Statistics data, the Consumer Price Index (CPI) for all items in the country grew 5.3% year-on-year in August. Month-on-month the index was 0.3% higher. This month’s CPI came in under expectations and will cast doubt on the FOMC taper probabilities in the coming weeks.
Once again energy contributed the most to the monthly increase, rising 2.0%, mainly due to a 2.8% growth in gasoline prices. The index for food climbed 0.4%. These two parts to the inflation data are what US consumers are worried about as weekly shopping and living expenses are rapidly rising.
The forex heatmap shifted from risk-on to risk-off with commodity pairs at the London close fully in the red with the Australian dollar the weakest of the currencies. The yen and Swiss franc caught a bid as did the fixed income markets in the US.
The US dollar dropped below a rising trend line and took out the previous swing low, which for me indicates we are now most likely to travel back into the low $90 range without any mention of Taper from the FOMC.
A weaker US dollar is also good for the EURUSD which had found support from a previous swing high market structure. The draw for the EURUSD is going to be the double top at 1.9085 and possibly the 1.2100 if the European rates rise against the US interest rates in the coming weeks. Earlier today news of a new fiscal stimulus into the euro area emerged with The European Commission approving a French plan for a €3 billion fund "that will invest through debt, hybrid and equity instruments in companies affected by the coronavirus outbreak." The fund will be available to companies in all sectors apart from the financial, "which were viable prior to the coronavirus outbreak and have demonstrated the long-term sustainability of their business model."
Gold caught a bid today, but it appears to be all to do with the US dollar weakness and a move into safe-haven assets.
Later on, we hear from Apple as they host their virtual product event “California Streaming”. The latest iPhone 13 along with the Apple Watch 7 and updates to a host of products and services will be revealed. Currently, the Apple Inc. share price is hovering near previous balance areas, so any disappointment or an underwhelmed sentiment from this event could push the price lower and back into the January 2021 price range. A surprise to the upside and we could be at all-time highs and the Nasdaq etc. could be ripping higher.
The Nasdaq in the hour before the US session started reacted favourably to the US CPI data as tech companies will suffer from a monetary policy change that includes rate hikes. Something the higher inflation could lead to. As it is the price action took out the buy-side stops and sell-side stops in the first couple of hours and is now currently looking for lower prices. If the buy the rumour sell the news occurs today, I am looking for a price target to the downside of 15,350 and then depending on the close will see whether the buyers stepped in there or not.