The dollar surged after the sticky inflation report
US inflation turned out to be wider and hotter than expected, confirming markets for another 75-point rate hike next week. Published data showed a 0.1% increase in prices for August, against expectations of a decline of the same magnitude. Annual inflation slowed from 8.5% to 8.3% but was better than the 8.1% forecasted.
Most of all, the markets were spooked by the surge in the core index. It added 0.6% over the month, to an annual rate of 6.3%, signalling inflation is spreading beyond energy and food.
The inflation roots set the stage for a stiffening response from the Fed. Almost immediately after the report, the swap market plotted a 100% probability of a rate hike of 75 points in a week. Risk assets have been vulnerable as the currency and stock markets have retreated from extremes over the past week. The dollar, meanwhile, has decisively returned to the upside.
US inflation turned out to be wider and hotter than expected, confirming markets for another 75-point rate hike next week. Published data showed a 0.1% increase in prices for August, against expectations of a decline of the same magnitude. Annual inflation slowed from 8.5% to 8.3% but was better than the 8.1% forecasted.
Most of all, the markets were spooked by the surge in the core index. It added 0.6% over the month, to an annual rate of 6.3%, signalling inflation is spreading beyond energy and food.
The inflation roots set the stage for a stiffening response from the Fed. Almost immediately after the report, the swap market plotted a 100% probability of a rate hike of 75 points in a week. Risk assets have been vulnerable as the currency and stock markets have retreated from extremes over the past week. The dollar, meanwhile, has decisively returned to the upside.
The S&P500 futures are losing almost 3% immediately after publication, and the Nasdaq100 is down 3.5%, erasing virtually all the gains from last Friday. The Dollar Index adds 1.6% to the day's lows, hitting 109.48. Once again, the 50 SMA acts as the basis for renewing longs after a brief shake-out.
Tomorrow is starts the week-long silence period for the Fed before the next policy meeting, which will leave the markets on their own assessments. In such an environment, the USD index is well placed to make new 20-year highs within just a few days.
Tomorrow is starts the week-long silence period for the Fed before the next policy meeting, which will leave the markets on their own assessments. In such an environment, the USD index is well placed to make new 20-year highs within just a few days.
#WaveAnalysis
#Palladium reversed from resistance level 2270.00
• Likely to fall to support level 2000.00
Palladium recently reversed down from the key resistance level 2270.00 (which has been reversing the price from the end of April).
The resistance level 2270.00 was further strengthened by the nearby upper daily Bollinger Band and by the 38.2% Fibonacci correction of the ABC correction (2) from March.
Palladium can be expected to fall further toward the next round support level 2000.00 (which stopped the previous waves (iv), (a) and 2).
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#Palladium reversed from resistance level 2270.00
• Likely to fall to support level 2000.00
Palladium recently reversed down from the key resistance level 2270.00 (which has been reversing the price from the end of April).
The resistance level 2270.00 was further strengthened by the nearby upper daily Bollinger Band and by the 38.2% Fibonacci correction of the ABC correction (2) from March.
Palladium can be expected to fall further toward the next round support level 2000.00 (which stopped the previous waves (iv), (a) and 2).
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#WaveAnalysis
#GBPUSD reversed from resistance level 1.1740
• Likely to fall to support level 1.1400
GBPUSD recently reversed down from the key resistance level 1.1740 (former monthly low from July), 20-day moving average and the 38.2% Fibonacci correction of the downward impulse from August.
The downward reversal from the resistance level 1.1740 continues the active short-term impulse wave 3 of wave (5) from May.
GBPUSD can be expected to fall further toward the next support level 1.1400 (low of wave (v) and the target for the completion of the impulse wave 3).
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#GBPUSD reversed from resistance level 1.1740
• Likely to fall to support level 1.1400
GBPUSD recently reversed down from the key resistance level 1.1740 (former monthly low from July), 20-day moving average and the 38.2% Fibonacci correction of the downward impulse from August.
The downward reversal from the resistance level 1.1740 continues the active short-term impulse wave 3 of wave (5) from May.
GBPUSD can be expected to fall further toward the next support level 1.1400 (low of wave (v) and the target for the completion of the impulse wave 3).
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Crypto bears confirmed their strength
#Bitcoin collapsed 9.6% on Tuesday, ending the day near $20.2K, which remains on Wednesday morning. Ether is losing 6.4% overnight to $1610. The most significant altcoins took a heavy hit, losing between 4.6% (BNB) and 13% (Solana), but remain on the plus side after seven days.
The bears in Bitcoin have asserted that they are in control. From the 50-day moving average level, BTCUSD experienced a substantial decline. This could bring back downward sentiment, as it did in August, for an extended period. However, it is too early to speculate on whether the June lows will be renewed.
Pressure on all risky assets came after a hot US inflation report, which increased the likelihood of a more robust Fed rate hike next week and triggered the strongest sell-off in more than two years.
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#Bitcoin collapsed 9.6% on Tuesday, ending the day near $20.2K, which remains on Wednesday morning. Ether is losing 6.4% overnight to $1610. The most significant altcoins took a heavy hit, losing between 4.6% (BNB) and 13% (Solana), but remain on the plus side after seven days.
The bears in Bitcoin have asserted that they are in control. From the 50-day moving average level, BTCUSD experienced a substantial decline. This could bring back downward sentiment, as it did in August, for an extended period. However, it is too early to speculate on whether the June lows will be renewed.
Pressure on all risky assets came after a hot US inflation report, which increased the likelihood of a more robust Fed rate hike next week and triggered the strongest sell-off in more than two years.
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Weakening UK inflation eases pressure on the Pound
The inflation report marathon continues, and it was the UK's turn this morning. Traditionally, the consumer price change figures attracted the most attention. For the month, they rose by 0.5% (slightly less than the 0.6% expected), and annual inflation fell from 10.1% to 9.9%, slightly weaker than the 10.0% expected.
As previously with the US data, core inflation exceeded expectations, reaching 6.3% - a new all-time high. However, there are several signs that the inflation wave has subsided.
The inflation report marathon continues, and it was the UK's turn this morning. Traditionally, the consumer price change figures attracted the most attention. For the month, they rose by 0.5% (slightly less than the 0.6% expected), and annual inflation fell from 10.1% to 9.9%, slightly weaker than the 10.0% expected.
As previously with the US data, core inflation exceeded expectations, reaching 6.3% - a new all-time high. However, there are several signs that the inflation wave has subsided.
Producers reduced their selling prices for the first time in almost two years. The reduction was a nominal 0.1%, but we should expect more. This indicator's annual rate of increase fell from 17.1% to 16.1%.
Producer input prices (an even earlier indicator for inflation) lost 1.2% in August - the largest since April 2020. By the same month a year earlier, growth had slowed to 20.5% compared with 22.6% in July and 24.1% in June.
It is also worth remembering that the effect of the high base (there were already higher price growth rates at this time a year ago) will weigh on the annual inflation figure.
Producer input prices (an even earlier indicator for inflation) lost 1.2% in August - the largest since April 2020. By the same month a year earlier, growth had slowed to 20.5% compared with 22.6% in July and 24.1% in June.
It is also worth remembering that the effect of the high base (there were already higher price growth rates at this time a year ago) will weigh on the annual inflation figure.
After we saw a sharp rise in the dollar on hot inflation from the US, one could have expected a new wave of pressure on the Pound on weak data. But that did not happen, for which there is a logical explanation. The news in the US caused a revision of rate expectations, but this is not happening in the UK markets. Lower inflation puts less pressure on Sterling's purchasing power. In the longer term, this will help reduce the shock to the economy from tightening monetary policy, which is positive for the currency.
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Yesterday we wondered whether the dollar retreat was a correction or a reversal. But the reaction of the financial markets to the US inflation report has put everything in its place by confirming that we are still in a bull market for the dollar. Very often, though not always, this means a bear market for equities.
The Dollar Index's corrective pullback from the extremes over the past week allowed players to accumulate liquidity for a new strike, which did not take long to come.
Dollar bulls took advantage of a rather average occasion - a slowdown in inflation to 8.3% instead of the expected 8.1% - to cause the DXY to strengthen by almost two per cent – the strongest one-day move since March 2020. Similarly, the stock market crash recalled the worst moments for the market at the start of the pandemic. That said, the inflation surprise (difference between fact and expectation) was not the most significant during this time.
The Dollar Index's corrective pullback from the extremes over the past week allowed players to accumulate liquidity for a new strike, which did not take long to come.
Dollar bulls took advantage of a rather average occasion - a slowdown in inflation to 8.3% instead of the expected 8.1% - to cause the DXY to strengthen by almost two per cent – the strongest one-day move since March 2020. Similarly, the stock market crash recalled the worst moments for the market at the start of the pandemic. That said, the inflation surprise (difference between fact and expectation) was not the most significant during this time.
The money markets have shifted markedly in their expectations for next week's rate hike, laying down a 100% chance of a 75-point increase and a 34% chance of a 100-point rise at once. The previous day, we talked about less than 90% for 75 points and 0% for 100 points. However, an even bigger shock to expectations in July did not cause commensurate market turbulence.
In our view, yesterday's move was purely technical. The dollar bulls proved that they hold control of the market, protecting the #DXY from any severe test of the 50-day moving average. This was most telling in the #EURUSD, which reversed below this line with a decisive move.
Usually, such strong moves at key levels will break the resistance of the second side for a long time. In other words, we could now see more of a dollar march in the coming days and weeks with the potential for a renewal of the DXY global highs.
In our view, yesterday's move was purely technical. The dollar bulls proved that they hold control of the market, protecting the #DXY from any severe test of the 50-day moving average. This was most telling in the #EURUSD, which reversed below this line with a decisive move.
Usually, such strong moves at key levels will break the resistance of the second side for a long time. In other words, we could now see more of a dollar march in the coming days and weeks with the potential for a renewal of the DXY global highs.
A further rise in the dollar could deprive the EURUSD of support near parity, sending it in search of a bottom lower in 0.95-0.96. We have seen quite a few reversals and accelerations in this area throughout the synthetic euro's existence.
The #GBPUSD would then risk a renewal of the lows from 1985, going down to 1.1000. For now, we consider a move below that year's low (below 1.05) in an unlikely extreme scenario.
The #GBPUSD would then risk a renewal of the lows from 1985, going down to 1.1000. For now, we consider a move below that year's low (below 1.05) in an unlikely extreme scenario.
For the #USDJPY, the road to 150 seems to be opening. However, we are cautiously looking at the potential for further gains. There are now reports that the Bank of Japan is preparing for currency interventions. The currency market values the dollar extremely highly, which could trigger a weakly controlled domino effect in the markets, which is hardly in the interest of the financial and monetary watchdogs.
Simply put, the dollar could easily add around 5% to current levels in the coming days and weeks. Still, one must watch the rhetoric of the G7 authorities at the abovementioned levels very closely.
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Simply put, the dollar could easily add around 5% to current levels in the coming days and weeks. Still, one must watch the rhetoric of the G7 authorities at the abovementioned levels very closely.
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US producer prices force the Fed to be patient
The US Producer Price Index fell by 0.1% in August after falling by 0.4% the month before. The annual growth rate slowed to 8.7% compared to 9.8% a month earlier and a peak of 11.7% in March.
The positive sentiment from this decisive slowdown is spoilt by the fact that inflation trends, like yesterday's CPI report, look broader. The core PPI added 0.4% last month, having risen steadily over the past 21 months.
The annualized inflation rate (9.7%) peaked in March like the overall index, with the latest data pointing to an increase of 7.3% y/y.
The US Producer Price Index fell by 0.1% in August after falling by 0.4% the month before. The annual growth rate slowed to 8.7% compared to 9.8% a month earlier and a peak of 11.7% in March.
The positive sentiment from this decisive slowdown is spoilt by the fact that inflation trends, like yesterday's CPI report, look broader. The core PPI added 0.4% last month, having risen steadily over the past 21 months.
The annualized inflation rate (9.7%) peaked in March like the overall index, with the latest data pointing to an increase of 7.3% y/y.
Although the annual growth rate is slowing down, the monthly price increase of the core index gives little reason to expect a softening of the Fed's stance. If the core PPI continues to increase on average at the same rate as in the last 5 months, this translates into a nearly 4% annual growth rate which is still above target.
Producer prices act as a leading indicator compared to consumer inflation and they are setting up for a further widening of the inflationary spiral, which will require the Fed to fight inflation for longer. However, in our view, the current dynamics hardly justify a steeper rate hike, but only a longer rate hike.
Producer prices act as a leading indicator compared to consumer inflation and they are setting up for a further widening of the inflationary spiral, which will require the Fed to fight inflation for longer. However, in our view, the current dynamics hardly justify a steeper rate hike, but only a longer rate hike.
#WaveAnalysis #NTG
• Natural gas rising inside impulse wave 3
• Likely to rise to resistance level 9.500
Natural gas recently reversed up from the key support level 7.755 (which has been reversing the price from the start of August), standing near the lower daily Bollinger Band and the 50% Fibonacci correction of the upward impulse from July.
The upward reversal from the support level 7.755 started the active short-term upward, which belongs to wave (C) from July.
Natural gas can be expected to rise further toward the next resistance level 9.500 (top of the earlier short-term correction (b) from last month).
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• Natural gas rising inside impulse wave 3
• Likely to rise to resistance level 9.500
Natural gas recently reversed up from the key support level 7.755 (which has been reversing the price from the start of August), standing near the lower daily Bollinger Band and the 50% Fibonacci correction of the upward impulse from July.
The upward reversal from the support level 7.755 started the active short-term upward, which belongs to wave (C) from July.
Natural gas can be expected to rise further toward the next resistance level 9.500 (top of the earlier short-term correction (b) from last month).
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#WaveAnalysis
#EURJPY reversed from resistance level 144.00
• Likely to fall to support level 142.00
EURJPY recently reversed down from the key resistance level 144.00 (which has been reversing the price from the start of June), standing near the upper daily Bollinger Band.
The downward reversal from the resistance level 144.00 created the daily Japanese candlesticks reversal pattern Shooting Star.
EURJPY can be expected to fall further toward the next support level 142.00 (former resistance, which stopped wave B in July).
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#EURJPY reversed from resistance level 144.00
• Likely to fall to support level 142.00
EURJPY recently reversed down from the key resistance level 144.00 (which has been reversing the price from the start of June), standing near the upper daily Bollinger Band.
The downward reversal from the resistance level 144.00 created the daily Japanese candlesticks reversal pattern Shooting Star.
EURJPY can be expected to fall further toward the next support level 142.00 (former resistance, which stopped wave B in July).
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Bitcoin won't give up $20K
#Bitcoin has lost 1.2% in the last 24 hours, trading at $20.1K. The plunge below a meaningful round level late Wednesday afternoon did not last long. Ethereum pulled down 0.3% to $1610 while the crypto community awaits the market's reaction to The Merge (move to PoS algorithm). We can describe sentiment across the crypto market as a cautious wait-and-see.
Short-term Bitcoin momentum indicates that sellers wanted to swing the market at the end of the day yesterday and snap stop orders, taking advantage of a period of reduced liquidity on Wednesday. As we see, it failed, and BTCUSD returned precisely to where it started its local decline.
However, the balance of power is now on the bears' side, as the global risk demand is suppressed, and critical technical levels (50- and 200-day MA, 200-week MA) are above the price.
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#Bitcoin has lost 1.2% in the last 24 hours, trading at $20.1K. The plunge below a meaningful round level late Wednesday afternoon did not last long. Ethereum pulled down 0.3% to $1610 while the crypto community awaits the market's reaction to The Merge (move to PoS algorithm). We can describe sentiment across the crypto market as a cautious wait-and-see.
Short-term Bitcoin momentum indicates that sellers wanted to swing the market at the end of the day yesterday and snap stop orders, taking advantage of a period of reduced liquidity on Wednesday. As we see, it failed, and BTCUSD returned precisely to where it started its local decline.
However, the balance of power is now on the bears' side, as the global risk demand is suppressed, and critical technical levels (50- and 200-day MA, 200-week MA) are above the price.
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US oil inventories: historic sell-off in SPR and business as usual
US commercial oil inventories rose by 2.4M barrels last week following an increase of 8.8M earlier. This dynamic fits in with seasonal trends, with inventories starting to fill at some point in September.
Around the same time and volume levels, net accumulation was reversed in 2018 and 2019. Note, however, that before 2014 (the shale boom), the fluctuations in stocks were mainly within the 300-360M range.
So, here we see some business as usual for commercial producers.
A vital point of the picture is the 30% drop in strategic reserves over the last year, almost equal to commercial reserves.
In other words, a net fall in overall inventories could have stimulated a ramp-up in production. But we see a slow increase in volumes in comparison to the 2011-2015 and 2016-2020 episodes. And there are a couple of significant reasons for this.
US commercial oil inventories rose by 2.4M barrels last week following an increase of 8.8M earlier. This dynamic fits in with seasonal trends, with inventories starting to fill at some point in September.
Around the same time and volume levels, net accumulation was reversed in 2018 and 2019. Note, however, that before 2014 (the shale boom), the fluctuations in stocks were mainly within the 300-360M range.
So, here we see some business as usual for commercial producers.
A vital point of the picture is the 30% drop in strategic reserves over the last year, almost equal to commercial reserves.
In other words, a net fall in overall inventories could have stimulated a ramp-up in production. But we see a slow increase in volumes in comparison to the 2011-2015 and 2016-2020 episodes. And there are a couple of significant reasons for this.
First, the sale of oil from reserves is aimed at bringing down the final price, which is not to the producers' liking and is holding back investment. In the last couple of weeks, the number of working rigs in the US has been falling, clearly showing that businesses are in no hurry to sell oil at a discount from the free market, topping up reserves.
Secondly, production in the Permian Basin - the main shale production region of recent years - is declining. New drilling is going to make up for the exhausted fields. Increased rates and the promise to raise more, combined with rising wages, further hold back the process.
As if that were not enough, US producers said Europe should not expect further supply increases. Perhaps this signals that companies following OPEC have switched from fighting for market share to maximising profits.
Secondly, production in the Permian Basin - the main shale production region of recent years - is declining. New drilling is going to make up for the exhausted fields. Increased rates and the promise to raise more, combined with rising wages, further hold back the process.
As if that were not enough, US producers said Europe should not expect further supply increases. Perhaps this signals that companies following OPEC have switched from fighting for market share to maximising profits.
As a result, we see gains in oil and gas prices over the last week against a general decline in financial markets. At the same time, we believe that the US government is unlikely to quickly abandon its oil price restraint policy, postponing the restocking momentum.
Investors and traders should also remember that a decisive policy tightening, by historical standards, puts additional pressure on prices. In our view, the downward momentum in oil prices is not over yet, although local attempts for WTI to exceed $91.50 and for Brent to return to $97 cannot be ruled out.
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Investors and traders should also remember that a decisive policy tightening, by historical standards, puts additional pressure on prices. In our view, the downward momentum in oil prices is not over yet, although local attempts for WTI to exceed $91.50 and for Brent to return to $97 cannot be ruled out.
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