NEWS / Indicators

Forex: Is the Fed Data Watching or Fighting Inflation??

Market Recap
The dollar is mostly up Monday after firming late in the North American session on the back of comments by Federal Reserve Chairman Ben Bernanke that were interpreted as hawkish.
Citing recent U.S. inflation data, Bernanke indicated that inflation readings have reached levels at or above the range the Fed deems comfortable, once again raising expectations for a rate hike at the Fed's policy meeting at the end of June. Yet the Chairman also highlighted a slowdown in the U.S. economy during his comments, which investors generally take as a dollar negative, confusing the market somewhat.

Market Preview
Next weekend we have the latest G8 meeting in Russia, and while the market doesn't expect any comments to be made on the FX markets, there maybe some comments about structural imbalances. If you recall, this USD weakness began after the last meeting when they mentioned imbalances, as such, similar comments could again weigh on the greenback.

Given that we are now entering the Northern summer, we can expect this choppy sentiment to continue. If you're a small account it's going to be case of having to take 30-40 pip winners rather than holding onto trades looking for moves to continue further. The Fed needs to clear up this confusion: either they are data watching or inflation watching!!

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Abdul Khan
For more ideas send me an email, abdul.khan@tricom.com.au