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US PPI data at record highs, will the Fed taper in November?

The end of a busy week for the central banks and the end of a messy week of trading for anyone that tried to navigate the news releases. On balance, most central banks don’t feel the economies can handle much in the way of monetary policy tightening, but some feel we’re getting close. Even if they do a little tapering, it will give them room to re-instate extra measures should 2022 not continue the recovery due to continued covid problems. If they do nothing, there is real chance inflation will run away from them.

Market Wrap

The forex heatmap composition remains the same at the London close as it started the London session. The move into the Antipodean and Canadian dollar could be on the back of President Biden and President Xi having a 90-minute telephone call, or it may have more to do with the US dollar not trading in any direction today.

A lot was made of the US PPI data that came in at 8.3% above the 8.2% but in-between the market survey forecasts. German inflation is at a 28-year high, and US Producer Prices are at an all-time high, which is going to make the next couple of Fed meetings tougher for those that say inflation is transitory. At what point do they concede? Cleveland Federal Reserve President Loretta Mester said today that she predicts inflation will remain high for the rest of this year. With inflation obviously running higher the Wall Street Journal today reported that the FOMC is planning to reduce bond-buying in November after the Atlanta Fed President told them he believes the country's economy will be able to function without the institution's bond-buying aid.

The US dollar index is now forming a head and shoulders pattern, some may say it could even be the makings of a Wykoff distribution pattern.

Either pattern fits the bill currently but if it is the Wyckoff schematic, we really do not want to see the swing high and $92.80 level get taken out before the double bottom and $91.77 get tested. My problem with Head and Shoulders patterns is that retail traders place the stops above the right shoulder and head swing highs, so they generally fail as a pattern, unless they are at the top of a major bull run. Which the US dollar index isn’t in my opinion. For me, there is no trade to take around these levels as we’re clearly in the middle of the consolidation range.

The GBPUSD couldn’t muster enough momentum to break out of the recent swing highs, so traveling down to a recent market structure or balance area was most likely. The negative divergence to price on the Momentum Oscillator would not have confirmed a higher high, so I am happy to see this price retracing a bit.

The S&P500 is currently down -0.89% for the week with the Dow Jones Industrial Average currently down -1.13%. For now, the S&P500 is finding support from a previous area of balance and the 20-day ema is also providing some support. In the past the 50-day ema has been the best “buy the dip” opportunity for Risk: Reward, so traders may wish to wait it out as we go into the weekend. The industrials will be most concerned about the chip shortage which has made General Motors come out today saying they will have to cut or withhold production on 200k vehicles. Currently, the higher prices of vehicles are helping mitigate the loss of revenue so earnings may not be as bad as expected.