Global inflation continues to rise

Inflation is beginning
to percolate across the globe
, as today’s French HICP numbers
reported at 2.4% vs. 2% expected, driven by what else? — Higher oil prices.
Ex-energy the results were far more muted with prices rising only 0.1% month
over month and 1.1% year over year. Nevertheless the creeping costs of crude are
clearly of concern to the ECB and tonight’s statement by Trichet reflected that
worry. He noted that “strong vigilance with regard to upside risks to price
stability is warranted” though the head of the ECB also stated that the rates
are “still appropriate”. With EZ inflation now at 2.2%, having crossed the ECB’s
2% target for the third month in a row it may just be a matter of time before
then central bank is forced to tighten.

However, European monetary authorities will be
reluctant to make a policy change until they are convinced that EZ economy is
strong enough to withstand it. To that end tonight’s Italian Industrial Orders
were welcome news to euro bulls as they jumped to a 1.3% month over month gain
against expectation of only 0.4% rise. The lower euro is helping Italian
industry to compete in global markets and should pacify Italian PM Berlusconi
from making his periodic complaints about the unfairness of the unified

Despite the mildly bullish backdrop the EUR/USD
lost ground tonight dropping once again below the 1.2000 figure. The move was
all the more surprising given the fact that today’s US Trade Balance data could
very well register the biggest monthly deficit on record. The market may well
shrug off the news for now, attributing the gap to the one off effects of higher
oil prices. However, if next week the TICS report shows any material weakness in
foreign flow of funds into US, dollar bulls will no longer be so cavalier about
the glaring US balance sheet problems.


Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report