Trade Desk Thoughts - U.S. CPI (July)

Daily Forex Fundamentals | Written by TheLFB-Forex.com | Aug 14 08 12:59 GMT |

Actual 0.8%, Expected 0.2%, Previous 0.3% Release Explanation: CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore gives an overall read of Inflationary pressures. It is the most widely used Inflation indicator of Central Banks, Institutions, and Governments. It is used to calculate Cost of Living numbers for Government programs. It can sometimes overstate Inflation because it does not reflect price changes in new Technology goods which are often declining in price as new innovations come into the market. Despite these criticisms, it remains the benchmark Inflation Index worldwide. CPI can be greatly influenced in any given month by movement in volatile food and energy prices, and therefore it is important to look at CPI excluding food and energy, commonly called the “Core Rate" of inflation. Within the Core Rate, some of the more volatile and closely watched components are Apparel, Tobacco, Airfares, and New Car sales. In addition to tracking the month over month (m/m), the year over year (y/y) change in core CPI is seen by Economists as the most reliable read of the underlying inflation rate. This is the "be all and end all" of Economic Releases. This report sets the tone for economic growth or contraction, and therefore eventually effects most other releases. The Gauge of Inflation is a report that moves Markets because it gives a Central Bank the information they need to make rate decisions. This therefore is a big Market mover as Institutions adjust existing or planned positions in response to the rate of Inflation and its impact on a Currency, i.e. CPI higher, Currency appreciation, CPI lower, Currency depreciation. Trade Desk Thoughts: Core CPI increased 0.3% in July and the yearly core rate increased to 2.5%. The numbers are enough to get the Fed concerned, but don't expect to see the Fed tighten policy anytime soon despite that fact that the jump in the yearly rate to 5.9 was the biggest jump in 17 years. Taken together with the weekly report on unemployment, today's numbers indicate a stagflationary condition exists. Forex Technical Reaction: There as a big drop in USD/JPY after the release as S&P futures declined on the reports and the dollar also weakened against the euro and pound. Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174. The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.