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The tame inflation pressure can support the Fed to keep the rate unchanged

Discussion in 'Current Market Sentiments' started by fx-recommends, Sep 28, 2015.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
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    · The data came today to show that August was the third month in a raw of watching US PCE rising yearly by only 0.3%.

    · This rate is still obviously away from the Fed's 2% inflation target over the medium term which was the main reason why the Fed did not raise the interest rate earlier this month.

    · With this tame inflation pressure, the Fed can keep waiting looking forward for watching evidence of inflation rising towards that target which has not been reached since March 2012.

    · Since the beginning of this year US yearly PCE has managed to stand close to zero mainly because of the significant slide of energy prices which started by the beginning of the second half of last year.

    · The energy prices are undermined now not only by the new coming up oil offers from Iran and the oil productions from OPEC which exceeding its 30m daily limits reaching 32.01m currently but also by the economic slowdown of China which is hard to be compensated by improving in US or in EU which is still struggling.

    · The concerns around the recovery in EU and also the uncertainty about the Chinese demand are putting pressure now on the commodities prices generally not only the oil prices.

    · The Fed's Chief Yellen has highlighted in her speech by the end of last week that she is still believing in the probability of hiking rate this year to drive down the worries about the economy.

    · Her speech could raise the market confidence in the US economy which grown annually by 3.9% in the second quarter of this year as the final revision said last Friday.

    · But this speech could not bring the green color back to the US blue chips which are still in red for the fifth consecutive day until now with continued weakness of the commodities and energy prices.

    · Yellen has tried more than once to figure out that raising rates will be by a gradual pace in early time can be this year otherwise there can be need for raising by a fast pace later.

    · This can be done as The Fed can start tightening taking this low inflation level as a reserve can help it later to halt hiking in the case of facing economic slowdown, as there is no high inflation pressure on it to raise rates.

    · The Fed is now showing that it is taking into its account the low inflation pressure currently naming it "transitory low inflation" has resulted from the low oil prices, as later in first quarter of next year this situation can be different on elimination of the oil prices slide impact.

    · The gap between the broad inflation figures and the core figures can get tighter within the first quarter of next year, as the oil prices could find support by the end of the first quarter of this year.

    · In the same time, The Fed is still repeating its appreciation of the housing market improving and its confidence in the US labor market recovery.

    · But until now, these reasons are not enough for raising rates for the first time since 2006, despite the materialized up cycle of the economy and also the improving of the labor market which can boost the wages and the prices later

    · The FOMC has emphasized on the growth downside risks in US because of the global economic slowdown, while there is no pressure yet on the Fed to hike the interest rate for containing the inflation which is still tame with no evidence yet to show that it is ascending to reach the Fed's 2% yearly inflation target.

    · The global equities markets are still suffering from worries about facing global economic slowdown, after the Fed has chosen to keep the fund rate unchanged between 0 and 0.25% on Sep. 17.

    · Most the market participants have seen in this taken decision undesirable dovish message can trigger worries about the economic performance of US which could grow by 3.9% annually in the second quarter.

    · The Fed's decision to refrain from hiking spurred selling pressure in the equities market and also higher demand for bonds dampened the yields of the US treasuries.

    · By maintaining its accommodative stance unchanged for longer time, the Fed has given leeway for speculations saying that the Fed is watching concerns we do not see lowering the trust in the US economy instead of driving it up.

    · The markets are still getting along with the dovish worrying message about the global economy sending the energy prices down shrugging off the benefits of keeping the interest rate at the current low level in US which can encourage the business spending for longer time by lowering the cost of borrowing.

    · The cautiousness of the Fed could undermine the greenback versus the gold which could also be boosted by the dovish risk off sentiment and also by falling of the interest rate outlook in US to reach $1156.70 last Thursday, before setting back for trading currently near $1135, after Yellen Speech in Massachusetts University.

    · The Gold daily Parabolic SAR (step 0.02, maximum 0.2) is reading today $1111.78 in its eighth day of being above the trading rate following the FOMC's meeting.

    · The gold is having now a higher low at $1120.92 coming above its previous higher bottom at $1098.86 which has been formed above last May. 20 low at $1073.95 which has been the lowest level since Feb. 7,2010.

    · Technically, XAUUSD is in need now to get over $1170 to contain the falling from it to $1198 and to gain higher upside momentum to take it out from the possibilities of having another lower high over the short term.

    · As the gold has already fixed its oversold stance over the short term charts and that can keep it exposed to another downside impulsive wave.

    · God willing, the Gold next resistance can be at $1156.70, before $1170 which can be followed by $1188.38 before facing higher resistance at $1205.63.

    · While the falling again can be met by supporting level at $1120.92 before $1098.86 which can be followed by $1173.95 which is still the lowest reached level since forming it's all times high at $1921 which has been recorded in September 2011.

    · Anyways, The way up is still in need for more reasons to take place technically, while the falling below $1073.95 can open the way to more downside momentum to test Jan .31, 2010 bottom, before facing the psychological level at $1000 per ounce.

    Have a good day

    Kind Regards

    FX Market Strategist

    Walid Salah El Din

    Mob: +20 12 2465 9143

    E-Mail: mail@fx-recommends.com


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