Inflation surprises threaten the market rebound
Last week brought two inflation surprises to the US markets. The first was the sensational CPI data for September. But on Friday evening, we turned our attention to another equally important indicator, inflation expectations.
The University of Michigan Consumer Sentiment Index is up for a fourth month, reaching 59.8 in its preliminary October estimate. At the same time, the trend of falling inflation expectations has broken. Americans forecast prices to rise 5.1% in a year versus 4.7% in September and 4.8% in August. Five-year expectations are back from 2.7% in September to 2.9%, where they held in July and August.
Last week brought two inflation surprises to the US markets. The first was the sensational CPI data for September. But on Friday evening, we turned our attention to another equally important indicator, inflation expectations.
The University of Michigan Consumer Sentiment Index is up for a fourth month, reaching 59.8 in its preliminary October estimate. At the same time, the trend of falling inflation expectations has broken. Americans forecast prices to rise 5.1% in a year versus 4.7% in September and 4.8% in August. Five-year expectations are back from 2.7% in September to 2.9%, where they held in July and August.
This significant shift in expectations indicates that inflationary pressures are becoming entrenched, which also showed in the rise in the core inflation index. It will not be surprising if this leads to another round of tightening rhetoric from the Fed. The most significant focus for traders may be whether there will be two more 75-point rate hikes or whether the FOMC will slow down or stop early after tightening in November.
On Monday, markets try to turn a blind eye to these risks by wagering on reports above depressed expectations. However, without comments from the Fed confirming a slower pace of rate hikes, this could be another bear market rally.
On Monday, markets try to turn a blind eye to these risks by wagering on reports above depressed expectations. However, without comments from the Fed confirming a slower pace of rate hikes, this could be another bear market rally.
#WaveAnalysis
#EURJPY broke key resistance level 144.00
• Likely to rise to resistance level 148.00
EURJPY recently broke above the key resistance level 144.00 (which has been steadily reversing the pair from the start of June).
The breakout of the resistance level 144.00 accelerated the active short-term impulse wave (iii), which belongs to the higher order impulse waves 3 and (3).
EURJPY can be expected to rise toward the next resistance level 148.00 (target price for the completion of the active impulse wave (iii)).
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#EURJPY broke key resistance level 144.00
• Likely to rise to resistance level 148.00
EURJPY recently broke above the key resistance level 144.00 (which has been steadily reversing the pair from the start of June).
The breakout of the resistance level 144.00 accelerated the active short-term impulse wave (iii), which belongs to the higher order impulse waves 3 and (3).
EURJPY can be expected to rise toward the next resistance level 148.00 (target price for the completion of the active impulse wave (iii)).
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#WaveAnalysis
#Silver reversed from support level 18.15
• Likely to rise to resistance level 19.50
Silver recently reversed up from the strong support level 18.15 (which has been repeatedly reversing the price from the middle of July) standing near the lower daily Bollinger Band.
The upward reversal from the support level 18.15 started the active short-term correction (ii).
Given the strength of the support level 18.15, Silver can be expected to rise toward the next resistance level 19.50 (middle of the sideways price range inside which the price has been moving from July).
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#Silver reversed from support level 18.15
• Likely to rise to resistance level 19.50
Silver recently reversed up from the strong support level 18.15 (which has been repeatedly reversing the price from the middle of July) standing near the lower daily Bollinger Band.
The upward reversal from the support level 18.15 started the active short-term correction (ii).
Given the strength of the support level 18.15, Silver can be expected to rise toward the next resistance level 19.50 (middle of the sideways price range inside which the price has been moving from July).
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Bitcoin completes consolidation in a triangle
#Bitcoin is up 1.4% in the past 24 hours, trading at $19,550 at the time of writing. U.S. stock indexes had stepped decisively higher the day before, and index futures are developing their gains by the start of European trading. A buoyant stock market backdrop supports appetite for crypto assets, but overall fluctuations remain unusually subdued.
Bitcoin's fluctuations since June fit into a triangle with a descending resistance line and horizontal support of $18.8K, and now the price moves at the right angle of the figure. Typically, this situation is resolved by a spike in volatility.
The confirmation of the break of the long-term consolidation should be looked for not earlier than the exit of the previous highs at $20.4K or the failure under $18K, with more probability of the second variant. However, we note that the downtrend in BTCUSD has lasted almost a year, taking away more than 70% of the peak price and becoming attractive for long-term buyers.
#Bitcoin is up 1.4% in the past 24 hours, trading at $19,550 at the time of writing. U.S. stock indexes had stepped decisively higher the day before, and index futures are developing their gains by the start of European trading. A buoyant stock market backdrop supports appetite for crypto assets, but overall fluctuations remain unusually subdued.
Bitcoin's fluctuations since June fit into a triangle with a descending resistance line and horizontal support of $18.8K, and now the price moves at the right angle of the figure. Typically, this situation is resolved by a spike in volatility.
The confirmation of the break of the long-term consolidation should be looked for not earlier than the exit of the previous highs at $20.4K or the failure under $18K, with more probability of the second variant. However, we note that the downtrend in BTCUSD has lasted almost a year, taking away more than 70% of the peak price and becoming attractive for long-term buyers.
The Bank of Japan cannot defend the yen and is unlikely to want to
The exchange rate of the Japanese yen to the dollar is renewing its 32-year lows since the beginning of the week, and there is no end to the move. The USDJPY has touched and exceeded 149 and has gained about 3% since the beginning of the month. The pair has gained an astounding 45% since the beginning of this new cycle in 2021, and there is no solid fundamental reason for the JPY to latch on to this decline.
A few moments ago, we saw another intervention from Japan's Ministry of Finance to stop the yen's accelerating fall. The USDJPY was trading close to 149.30, and that sent the pair falling back to 148.12 within a minute.
The latest attempt of the authorities to stop the yen's unilateral decline can only make the markets smile for now. On Tuesday, Finance Minister Suzuki warned that Japan is ready to take appropriate and drastic measures against speculators.
The exchange rate of the Japanese yen to the dollar is renewing its 32-year lows since the beginning of the week, and there is no end to the move. The USDJPY has touched and exceeded 149 and has gained about 3% since the beginning of the month. The pair has gained an astounding 45% since the beginning of this new cycle in 2021, and there is no solid fundamental reason for the JPY to latch on to this decline.
A few moments ago, we saw another intervention from Japan's Ministry of Finance to stop the yen's accelerating fall. The USDJPY was trading close to 149.30, and that sent the pair falling back to 148.12 within a minute.
The latest attempt of the authorities to stop the yen's unilateral decline can only make the markets smile for now. On Tuesday, Finance Minister Suzuki warned that Japan is ready to take appropriate and drastic measures against speculators.
But the speculators are more than a cohort of traders looking for a quick profit. In this case, the market is betting that Japan will not be able to sit on two chairs simultaneously. Even with a trillion dollars in U.S. treasuries as a safety cushion, it is impossible to keep long-term bond rates near zero in the face of extreme rate hikes and seriously assert its intention to defend the yen.
Sooner rather than later, Japan must choose one action, defend the yen, or defend bond yields by abandoning its current controversial policy.
So far, we see tangible signs that policymakers are only trying to slow the weakening of the yen but are unwilling to reverse the process. That means the markets are likely to continue the trend of buying USDJPY on any declines. This is reminiscent of Soros' (and not just his) bet that the Bank of England would not be able to stay within the European monetary mechanism, as it was contrary to economic fundamentals.
Sooner rather than later, Japan must choose one action, defend the yen, or defend bond yields by abandoning its current controversial policy.
So far, we see tangible signs that policymakers are only trying to slow the weakening of the yen but are unwilling to reverse the process. That means the markets are likely to continue the trend of buying USDJPY on any declines. This is reminiscent of Soros' (and not just his) bet that the Bank of England would not be able to stay within the European monetary mechanism, as it was contrary to economic fundamentals.
Chances are high that the Ministry of Finance and the Bank of Japan want to bring about an orderly weakening of the yen. It is quite possible that before March 2023, USDJPY will test the 1990 highs near 160, more than doubling from the global lows of 2012, when international interest rates were at their peak. That is, when the other major central banks squeezed their rates, roughly as Japan had done for years before.
It seems unlikely that the Bank of Japan would copy the policies of other central banks by drastically raising rates. After all, in that case, the government's expenditures on servicing the government debt would balloon to more than 280% of GDP, while economic growth would remain lifeless. Belt-tightening in such an environment would be far beyond what we saw with Greece a decade ago.
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It seems unlikely that the Bank of Japan would copy the policies of other central banks by drastically raising rates. After all, in that case, the government's expenditures on servicing the government debt would balloon to more than 280% of GDP, while economic growth would remain lifeless. Belt-tightening in such an environment would be far beyond what we saw with Greece a decade ago.
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The sudden improvement in German business sentiment
The German ZEW Economic Sentiment index unexpectedly improved in October, marking an increase from -61.9 to -59.2, whereas it had been expected to dip even deeper to -66.7. The index shows some signs of stabilisation, dropping to the same territory where it was at the peak of the global financial crisis.
Fourteen years ago, it took five months from the bottom of the index to the decisive upturn, and it would be premature to believe that the current attempt to "push back from the bottom" indicates a change in a trend toward improvement.
The Current Conditions Index continues its plunge, falling to its lowest level since August 2020. But this index is more likely to follow the stocks and FX than to provide leading signals. In 2008 and 2020, for example, this sub-index bottomed two months after the markets.
At the same time, a sharp increase in the main index occurred in the same month when the markets and the euro were turning from decline to growth.
The German ZEW Economic Sentiment index unexpectedly improved in October, marking an increase from -61.9 to -59.2, whereas it had been expected to dip even deeper to -66.7. The index shows some signs of stabilisation, dropping to the same territory where it was at the peak of the global financial crisis.
Fourteen years ago, it took five months from the bottom of the index to the decisive upturn, and it would be premature to believe that the current attempt to "push back from the bottom" indicates a change in a trend toward improvement.
The Current Conditions Index continues its plunge, falling to its lowest level since August 2020. But this index is more likely to follow the stocks and FX than to provide leading signals. In 2008 and 2020, for example, this sub-index bottomed two months after the markets.
At the same time, a sharp increase in the main index occurred in the same month when the markets and the euro were turning from decline to growth.
Interestingly, the German financial market is behaving as if it has already found a firm basis for growth: The DAX index has gained about 8% in the last four trading sessions and is back to the 13,000 mark, above which it was last seen in the first half of September.
The improvement in investor sentiment in Germany is due in no small part to gas storage filling faster than planned and a reversal to lower energy prices in recent weeks.
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The improvement in investor sentiment in Germany is due in no small part to gas storage filling faster than planned and a reversal to lower energy prices in recent weeks.
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#WaveAnalysis #SP500
S&P 500 reversed from key support level 3570.00
• Likely to rise to resistance level 3800.00
S&P 500 index recently reversed up with the daily Bullish Engulfing from the key support level 3570.00 (which stopped the price at the start of October) standing near the lower daily Bollinger Band.
The upward reversal from the support level 3570.00 started the active short-term corrective wave 2.
Given the improving risk sentiment globally and the clear divergence on the daily Stochastic indicator, S&P 500 index can be expected to rise toward the next resistance level 3800.00 (top of earlier daily Evening Star from the start of this month).
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S&P 500 reversed from key support level 3570.00
• Likely to rise to resistance level 3800.00
S&P 500 index recently reversed up with the daily Bullish Engulfing from the key support level 3570.00 (which stopped the price at the start of October) standing near the lower daily Bollinger Band.
The upward reversal from the support level 3570.00 started the active short-term corrective wave 2.
Given the improving risk sentiment globally and the clear divergence on the daily Stochastic indicator, S&P 500 index can be expected to rise toward the next resistance level 3800.00 (top of earlier daily Evening Star from the start of this month).
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#WaveAnalysis
#AUDJPY reversed from key support level 91.00
• Likely to rise to resistance level 94.70
AUDJPY currency pair recently reversed up with the daily hammer from the key support level 91.00 (which has been reversing the price from the middle of May) standing near the lower daily Bollinger Band, support trendline of the daily up channel from September and the 50% Fibonacci correction of the upward impulse from February.
The upward reversal from the support level 91.00 started the active medium-term impulse wave (3).
AUDJPY can be expected to rise toward the next resistance level 94.70 (top of wave B from the start of this month).
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#AUDJPY reversed from key support level 91.00
• Likely to rise to resistance level 94.70
AUDJPY currency pair recently reversed up with the daily hammer from the key support level 91.00 (which has been reversing the price from the middle of May) standing near the lower daily Bollinger Band, support trendline of the daily up channel from September and the 50% Fibonacci correction of the upward impulse from February.
The upward reversal from the support level 91.00 started the active medium-term impulse wave (3).
AUDJPY can be expected to rise toward the next resistance level 94.70 (top of wave B from the start of this month).
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#Bitcoin is back at $19.3K, which has been the case for seven of the last eight mornings. Attempts to build on the upside have again been met with increased selling. A perfect month-long flat has led us to see the rate lose 1.5% in 24 hours, add 0.8% in 7 days and 2.4% in 30 days. Ethereum trades near $1300, losing 2.4% in 24 hours, but is up 0.65% in 7 days.
That seemed impossible, but Bitcoin found room to move further into the corner of the triangle, pulling back from its upper boundary, and the 50-day moving average acts as resistance now. All this suggests that the financial world is waiting for other clear signals, ready for a strong move in either direction.
That said, we continue to be inclined to believe that the exit from this lull will be up rather than down - the decline has been too long and too much negativity is already embedded in prices.
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That seemed impossible, but Bitcoin found room to move further into the corner of the triangle, pulling back from its upper boundary, and the 50-day moving average acts as resistance now. All this suggests that the financial world is waiting for other clear signals, ready for a strong move in either direction.
That said, we continue to be inclined to believe that the exit from this lull will be up rather than down - the decline has been too long and too much negativity is already embedded in prices.
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UK’s inflation sluggish slowdown
The portion of the UK inflation data showed that the problem is in no hurry to recede. The consumer price index returned to 10.1% y/y, changing hopes that the trend had already reversed. The retail price index is climbing further upwards, reaching 12.6%. The contribution of food to inflation has already exceeded the impact of transport costs.
Excluding these volatile components, the acceleration continues, with the core CPI rising to 6.5% compared to 6.3% the previous month. UK’s Retail Price Index at 12.6% y/y was last seen in March 1981. However, producer prices signal an easing of inflationary pressures, albeit not as quickly as previously hoped.
The portion of the UK inflation data showed that the problem is in no hurry to recede. The consumer price index returned to 10.1% y/y, changing hopes that the trend had already reversed. The retail price index is climbing further upwards, reaching 12.6%. The contribution of food to inflation has already exceeded the impact of transport costs.
Excluding these volatile components, the acceleration continues, with the core CPI rising to 6.5% compared to 6.3% the previous month. UK’s Retail Price Index at 12.6% y/y was last seen in March 1981. However, producer prices signal an easing of inflationary pressures, albeit not as quickly as previously hoped.
Input PPI has slowed to 20% from 20.9% a month earlier and peaked at 24.2% in June. Output PPI inflation slowed to 15.9% after peaking at 17% in July. The persistent downward trend in exchange prices for agricultural and energy products has reinforced disinflationary trends all these months.
The higher inflation trajectory is creating pressure on the Bank of England to take even more steps to raise rates. The Bank of England's recent statements about its willingness to move to quantitative tightening from November and its reluctance to stretch out its emergency government bond-buying programme show that the central bank is indeed concerned about inflationary pressures.
The higher inflation trajectory is creating pressure on the Bank of England to take even more steps to raise rates. The Bank of England's recent statements about its willingness to move to quantitative tightening from November and its reluctance to stretch out its emergency government bond-buying programme show that the central bank is indeed concerned about inflationary pressures.
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#WaveAnalysis
#Brent crude oil reversed from resistance level 95.00
• Likely to fall to support level 86.00
Brent crude oil recently reversed down from the resistance level 95.00 (which has been reversing the price from September), coinciding with the daily down channel from July, upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from June.
The downward reversal from the resistance level 95.00 started the active medium-term ABC wave (2).
Brent crude oil can be expected to fall toward the next support level 86.00 (target for the completion of the active ABC correction (2)).
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#Brent crude oil reversed from resistance level 95.00
• Likely to fall to support level 86.00
Brent crude oil recently reversed down from the resistance level 95.00 (which has been reversing the price from September), coinciding with the daily down channel from July, upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from June.
The downward reversal from the resistance level 95.00 started the active medium-term ABC wave (2).
Brent crude oil can be expected to fall toward the next support level 86.00 (target for the completion of the active ABC correction (2)).
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#WaveAnalysis
#EURNZD reversed from resistance level 1.7500
• Likely to fall to support level 1.7200
EURNZD recently reversed down from the key resistance level 1.7500 (top of the sideways price range inside which the pair has been trading from the end of last month), intersecting with the upper daily Bollinger Band.
The downward reversal from the resistance level 1.7500 started the active short-term corrective wave (iv).
EURNZD can be expected to fall toward the next support level 1.7200 (lower boundary of this price range).
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#EURNZD reversed from resistance level 1.7500
• Likely to fall to support level 1.7200
EURNZD recently reversed down from the key resistance level 1.7500 (top of the sideways price range inside which the pair has been trading from the end of last month), intersecting with the upper daily Bollinger Band.
The downward reversal from the resistance level 1.7500 started the active short-term corrective wave (iv).
EURNZD can be expected to fall toward the next support level 1.7200 (lower boundary of this price range).
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Gold is down more than 1% on Wednesday and 5.5% in the last two weeks. Declining almost daily over the previous two weeks, it wiped away nearly all its gains of the recent rally, going back to levels of $1630. The technical picture looks contradictory, with something for both bulls and bears.
Last week, gold returned under the 200-week moving average, signalling that the bears are still in control of the long-term trend in the metal. The last time we saw a similar technical pattern was in 2013. The analogy is reinforced by the fact that there were several years of solid gold price increases in response to the recession, rate cuts and QE. This was followed by a correction and a false attempt to push gold to renewed highs. But the economic slowdown played against the demand for the precious metal.
At that time, a renewed failure under the 200-week mark was followed by an absolute surrender, which took 18% off the price within seven weeks. The bearish trend finally died out two and a half years later.
Last week, gold returned under the 200-week moving average, signalling that the bears are still in control of the long-term trend in the metal. The last time we saw a similar technical pattern was in 2013. The analogy is reinforced by the fact that there were several years of solid gold price increases in response to the recession, rate cuts and QE. This was followed by a correction and a false attempt to push gold to renewed highs. But the economic slowdown played against the demand for the precious metal.
At that time, a renewed failure under the 200-week mark was followed by an absolute surrender, which took 18% off the price within seven weeks. The bearish trend finally died out two and a half years later.
Despite the frightening similarity in the weekly chart, there are differences from what happened ten years prior. Back then, the price of gold reached the bottom on the day of the first Fed rate hike, but not this time around.
On the daily candlestick charts, the rally in gold was stopped by the 50-day MA, which has acted as resistance more than once since April of this year. However, the bullish divergence between the price and the RSI remains in force, indicating that the bearish momentum is locally exhausted.
Should gold close this week below its 200-week average, which is now near $1680, the chances of a bearish scenario would increase sharply. In the recent history of free-floating, gold has fallen 18-30% after falling below the 200-week average. Translated to our prices, that implies a downside potential to $1350 or down to $1150, where the first level coincides with the upper bound of the 2013-2018 trading range and the lower level is near the lows of that same prolonged range.
On the daily candlestick charts, the rally in gold was stopped by the 50-day MA, which has acted as resistance more than once since April of this year. However, the bullish divergence between the price and the RSI remains in force, indicating that the bearish momentum is locally exhausted.
Should gold close this week below its 200-week average, which is now near $1680, the chances of a bearish scenario would increase sharply. In the recent history of free-floating, gold has fallen 18-30% after falling below the 200-week average. Translated to our prices, that implies a downside potential to $1350 or down to $1150, where the first level coincides with the upper bound of the 2013-2018 trading range and the lower level is near the lows of that same prolonged range.