US inflation subdued but economic momentum remains
The Greenback took a step back from the key levels in EUR/USD (1.1670) and the USD Index (94.30) mentioned in last week’s report. In fact, the Dollar needs to hold nearby support in the USD index at 92.80 and resistance in EUR/USD around 1.1870 to confirm that it remains in recovery, and that the downtrend is not about to resume. Both Janet Yellen and Mario Draghi were speaking at the weekend’s G30 conference, with Yellen stating her belief that inflation will eventually arrive and Draghi seeing little risk to financial markets. Regular readers will be aware that our view is the Fed should raise interest rates despite the absence of inflation in order to moderate risk taking and reduce the risk of asset bubbles. Recent US economic data continues to suggest sufficient momentum in the US economy to warrant a process of modest tightening, and Yellen’s rhetoric remains consistent with a December rate hike.
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