Have we started to reach a polite equilibrium within Forex, gold, equities and bonds for a moment? U.S CPI data just came in below expectations, the decrease of inflation pressures in the U.S will be welcomed. Price ranges are starting to show signs of polite trends in Forex and equities - there seems to be a recognition of basic ideas which are perhaps serving as factors that are 'accepted' in the broad markets. Please do not close your eyes for long, because conditions can change in a moments notice, but for the moment the USD is weaker.
The Federal Reserve could still raise its Federal Funds Rate at the end of July, though today's CPI data outcome will create headwinds against that notion. There has been a wide voice given by folks who say the Fed shouldn't raise rates again, and that real inflation will start to come down and that it is doing so now. The CPI has shown a decrease in U.S inflation - a larger drop than anticipated, which will certainly spur on USD weakness today. This confirms - momentarily - many analysts inflation outlooks who work in financial institutions not related to the U.S Federal Reserve and have been saying price pressures will recede. Yet, inflation is not dead yet and may still be heard. Stagflation is a genuine concern.
Tomorrow's U.S Producer Price Index will be another opportunity to stir sentiment. Remember folks, outlooks are often adjusted according to facts. But what are facts? Can we really trust them. What are leading indicators, what is data that looks forward instead of backwards - numbers are often offered as evidence but randomness often rules interpretations of data. How do acceptable outlooks really develop when data management and outlooks can change within split seconds depending on the team looking over the quantified math. Humans are naturally optimistic, even when the data is negative, this can lead to bias.
We are in an age when trading software is doing a majority of the large volume transactions, and has been coded by algos processed by quant teams in financial institutions. Do retail traders even have a chance in this type of environment? Yes, retail traders can still manage to find opportunities, but they need to combine technical perceptions with fundamental knowledge of data, and combine the two into a behavioral sentiment outlook depending on their time horizons.
Market dynamics and situations change a lot in the broad markets. Assets move depending on the bias of incoming data. Preconceived notions being acted on and then changing according to need can be done in microseconds because of existing trading technology that financial institutions use. Larger players have an advantage and they are not about to give this up. Timeframes are also different for big trading houses compared to small speculators. It is also important to stress institutional traders could care less about day traders in Forex.
We have finished nearly a month of summer trading and seem to be confronted by a question of who do we trust? Do we trust the U.S Federal Reserve and its decisions and outlooks? In my opinion, you shouldn't. But you should also remember the old adage, do not fight the Fed. The U.S central bank is bigger than you and I.
Central banks work together and often coordinate their combined outlooks, while shadows cast from the 'oversight' of political leaders rhetoric are frequently given consideration by the Fed, BoE, ECB and BoJ officials even if they claim they are not listening. Inflation is not welcomed by central banks, but because they are largely reactive and not proactive the Fed and others sometimes look uncaring and like fools, while the public sometimes suffer.
Thus we sit and wait for central bank pronouncements, but for the moment we seem to have a good grasp regarding what they will say. And perhaps - for the moment, maybe that is why Forex, gold and equities are trading rather politely. We seem to think we know what is going to be said moving forward for the next few weeks and remainder of the summer - more of the same warnings and interest rate correlations sprinkled in via central bank diatribes.
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