Inflation in China remains worryingly weak, official producer and consumer price data for May confirmed today.
The CPI was up 0.2% y/y last month, only slightly increased from the 0.1% y/y pace in April.
The producer price index shows that the disinflationary trend is continuing. It has been falling year-on-year for the past eight months, accelerating from 3.6% y/y to 4.6% y/y in May. This is the steepest decline in seven years.
Producer prices are a leading indicator of consumer inflation and the overall economy. The latest data confirms the weakness of the world's second-largest economy.
The shallow inflation frees the People’s Bank of China to stimulate the economy further by cutting interest rates or putting pressure on the renminbi.
As a result, USDCNH quickly rebounded from the previous day's pullback to trade back above 7.14, not far from the highs seen since last November.
The CPI was up 0.2% y/y last month, only slightly increased from the 0.1% y/y pace in April.
The producer price index shows that the disinflationary trend is continuing. It has been falling year-on-year for the past eight months, accelerating from 3.6% y/y to 4.6% y/y in May. This is the steepest decline in seven years.
Producer prices are a leading indicator of consumer inflation and the overall economy. The latest data confirms the weakness of the world's second-largest economy.
The shallow inflation frees the People’s Bank of China to stimulate the economy further by cutting interest rates or putting pressure on the renminbi.
As a result, USDCNH quickly rebounded from the previous day's pullback to trade back above 7.14, not far from the highs seen since last November.
#WaveAnalysis
#WTI reversed from resistance level 73.45
Likely to fall to support level 68.00
WTI crude oil recently reversed down from the resistance level 73.45 (which has been steadily reversing the price from the start of May).
The resistance level 73.45 was strengthened by the intersecting 50% Fibonacci correction of the earlier sharp downward impulse wave 1 from the start of April.
WTI crude oil can be expected to fall further toward the next support level 68.00 (low of the Bullish Engulfing from the end of May).
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#WTI reversed from resistance level 73.45
Likely to fall to support level 68.00
WTI crude oil recently reversed down from the resistance level 73.45 (which has been steadily reversing the price from the start of May).
The resistance level 73.45 was strengthened by the intersecting 50% Fibonacci correction of the earlier sharp downward impulse wave 1 from the start of April.
WTI crude oil can be expected to fall further toward the next support level 68.00 (low of the Bullish Engulfing from the end of May).
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#WaveAnalysis
#EURAUD broke key support level 1.6045
Likely to fall to support level 1.5855
EURAUD recently broke the key support level 1.6045 (which stopped the previous minor correction ii at the end of March).
The breakout of the support level 1.6045 accelerated the active downward impulse wave (c), which belongs to the ABC correction 2 from the end of April.
EURAUD can be expected to fall further toward the next support level 1.5855 (target price for the completion of the active impulse wave (c)).
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#EURAUD broke key support level 1.6045
Likely to fall to support level 1.5855
EURAUD recently broke the key support level 1.6045 (which stopped the previous minor correction ii at the end of March).
The breakout of the support level 1.6045 accelerated the active downward impulse wave (c), which belongs to the ABC correction 2 from the end of April.
EURAUD can be expected to fall further toward the next support level 1.5855 (target price for the completion of the active impulse wave (c)).
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According to CoinMarketCap, the total capitalisation of the crypto market fell 7.6% over the week to $1.06 trillion, close to lows not seen since almost mid-March. Adding to the market's nervousness was a sharp sell-off in altcoins.
The biggest demand in such a market is for USDT, as Tether decided to print an additional 1 billion.
#Bitcoin once again briefly acted as a safe haven, temporarily enjoying an influx of buyers as one of the most liquid assets in the sector. At the same time, the technical picture remains bearish. Bitcoin closed the week below its 200-week moving average, which last time out resulted in a 20-week downtrend.
On the daily timeframe, there is little to cheer about as the decline remains within the bearish corridor. However, the final victory of the bears can only be seen in the case of a fix below $25,000, from which BTCUSD bounced over the weekend.
#Ethereum lost 6.5% to $1750. Other leading altcoins from the top 10 lost from 3% (#XRP) to 28% (#Solana) and 22% (#BNB).
The biggest demand in such a market is for USDT, as Tether decided to print an additional 1 billion.
#Bitcoin once again briefly acted as a safe haven, temporarily enjoying an influx of buyers as one of the most liquid assets in the sector. At the same time, the technical picture remains bearish. Bitcoin closed the week below its 200-week moving average, which last time out resulted in a 20-week downtrend.
On the daily timeframe, there is little to cheer about as the decline remains within the bearish corridor. However, the final victory of the bears can only be seen in the case of a fix below $25,000, from which BTCUSD bounced over the weekend.
#Ethereum lost 6.5% to $1750. Other leading altcoins from the top 10 lost from 3% (#XRP) to 28% (#Solana) and 22% (#BNB).
#WaveAnalysis
#Nikkei225 reversed from support level 31600.00
Likely to rise to resistance level 33635.00
Nikkei 225 index recently reversed up from the pivotal support level 31600.00 (which stopped the previous sharp impulse wave (i) at the end of May).
The support level 31600.00 was strengthened by the two intersecting trendlines of the two daily up channels inside which the price has been moving over the last few weeks.
Given the prevailing daily uptrend, Nikkei 225 index can be expected to rise further toward the next resistance level 33635.00 (target price for the completion of the active impulse wave (v)).
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#Nikkei225 reversed from support level 31600.00
Likely to rise to resistance level 33635.00
Nikkei 225 index recently reversed up from the pivotal support level 31600.00 (which stopped the previous sharp impulse wave (i) at the end of May).
The support level 31600.00 was strengthened by the two intersecting trendlines of the two daily up channels inside which the price has been moving over the last few weeks.
Given the prevailing daily uptrend, Nikkei 225 index can be expected to rise further toward the next resistance level 33635.00 (target price for the completion of the active impulse wave (v)).
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#WaveAnalysis
#EURGBP reversed from support level 0.8550
Likely to rise to resistance level 0.8650
EURGBP currency pair recently reversed up from the key support level 0.8550 (former multi-month low from December).
The support level 0.8550 was strengthened by the support trendline of the daily down channel from February and by the lower daily Bollinger Band.
Given the oversold daily Stochastic, EURGBP can be expected to rise further toward the next resistance level 0.8650 (top of the previous correction (ii)).
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#EURGBP reversed from support level 0.8550
Likely to rise to resistance level 0.8650
EURGBP currency pair recently reversed up from the key support level 0.8550 (former multi-month low from December).
The support level 0.8550 was strengthened by the support trendline of the daily down channel from February and by the lower daily Bollinger Band.
Given the oversold daily Stochastic, EURGBP can be expected to rise further toward the next resistance level 0.8650 (top of the previous correction (ii)).
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The crypto market cap rose 1% in 24 hours to $1.06 trillion. Bitcoin adds 1%, while #Ethereum just 0.4%. Meanwhile, the top altcoins try to recover some losses, adding between 0.2% (#Cardano) and 4% (#BNB). The cryptocurrency Fear & Greed Index is in the Fear territory at 45 (-2 points overnight), whereas the Fear & Greed index for the stock market is at 79 (extreme greed).
#Bitcoin is struggling for a third day to hold above $26K. This struggle away from meaningful technical levels shows how heavy the crypto market is right now, despite optimism in equities and a slightly decreased USD rate. Technically, to break the downtrend, Bitcoin needs to overcome $27K, and a drop below $26.5K is required to confirm the downtrend. The second scenario seems more likely.
According to CoinShares, investments in crypto funds fell by $88 million last week, the most in three months and the eighth consecutive week of outflows. Bitcoin fell by $52 million and Ethereum by $36 million.
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#Bitcoin is struggling for a third day to hold above $26K. This struggle away from meaningful technical levels shows how heavy the crypto market is right now, despite optimism in equities and a slightly decreased USD rate. Technically, to break the downtrend, Bitcoin needs to overcome $27K, and a drop below $26.5K is required to confirm the downtrend. The second scenario seems more likely.
According to CoinShares, investments in crypto funds fell by $88 million last week, the most in three months and the eighth consecutive week of outflows. Bitcoin fell by $52 million and Ethereum by $36 million.
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Worrying oil weakness against the news
Oil lost more than 4% since the start of Monday, retesting the lower end of its range for the last three months. WTI briefly traded below $67.0 and Brent below $72.
On Tuesday, oil is enjoying buying at the lower end of the range, gaining more than 1.5% since the start of the day. However, there are big questions about whether the current rally can gain traction.
Over the past three months, oil has repeatedly found itself close to current levels, from which it has bounced on technical factors (accumulated local oversold conditions) and several announcements of production cuts by OPEC+ members.
Oil lost more than 4% since the start of Monday, retesting the lower end of its range for the last three months. WTI briefly traded below $67.0 and Brent below $72.
On Tuesday, oil is enjoying buying at the lower end of the range, gaining more than 1.5% since the start of the day. However, there are big questions about whether the current rally can gain traction.
Over the past three months, oil has repeatedly found itself close to current levels, from which it has bounced on technical factors (accumulated local oversold conditions) and several announcements of production cuts by OPEC+ members.
Notably, the current sell-off in oil is going against the news. Prices peaked locally shortly after Saudi Arabia announced a voluntary production cut of 1m BPD and Russia's plans to cut production from next year.
In addition, the US government announced at the end of last week that it would begin buying oil for the Strategic Petroleum Reserve. According to Baker Hughes data released on Friday, the number of active rigs (oil + gas) fell by a further 1 to 695.
More interestingly, the sharp fall in oil prices since mid-April has been accompanied by impressive demand for equities on the back of strong macro data.
In addition, the US government announced at the end of last week that it would begin buying oil for the Strategic Petroleum Reserve. According to Baker Hughes data released on Friday, the number of active rigs (oil + gas) fell by a further 1 to 695.
More interestingly, the sharp fall in oil prices since mid-April has been accompanied by impressive demand for equities on the back of strong macro data.
It is no coincidence that OPEC+ is so strongly defending current levels. The $65 area has acted as an important mode switch for oil. A break below triggered a bullish capitulation that halved the price before a steady move higher in 2008, 2014 and 2020. The ability to hold higher triggered a rally that doubled the price in 2007, 2010 and 2021.
The fact that the 200-week moving average is being fought over adds to the epochal nature of the current battle between the bulls and bears. And the persistent, repeated attempts to break below this line since February is more of a bearish signal. Graphically, it looks more like what we saw in 2008. And that is an argument for oil to head towards $30 now, although it would still be prudent to wait for consolidation below $60 to gain more confidence in a downside move.
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The fact that the 200-week moving average is being fought over adds to the epochal nature of the current battle between the bulls and bears. And the persistent, repeated attempts to break below this line since February is more of a bearish signal. Graphically, it looks more like what we saw in 2008. And that is an argument for oil to head towards $30 now, although it would still be prudent to wait for consolidation below $60 to gain more confidence in a downside move.
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US Core Inflation could cause Fed concern
US consumer inflation slowed to 4.0% y/y in May from 4.9% y/y. The monthly gain was 0.1%. In both cases, the data was 0.1 percentage point weaker than expected, marking a slightly faster decline in the inflation problem than expected.
By and large, inflation has returned to normal due to energy and food, which are not only no longer contributing positively to price increases but are pulling them down.
US consumer inflation slowed to 4.0% y/y in May from 4.9% y/y. The monthly gain was 0.1%. In both cases, the data was 0.1 percentage point weaker than expected, marking a slightly faster decline in the inflation problem than expected.
By and large, inflation has returned to normal due to energy and food, which are not only no longer contributing positively to price increases but are pulling them down.
The core CPI (excluding food and energy) added 5.3% y/y against 5.5% y/y. However, there is an elevated pace of month-on-month price growth, which could soon be a stumbling block for the markets.
So far, rate rises have not caused enough of a cooling of the economy and labour market that this would reduce domestic price pressures. The current monthly rate of increase of the core index has been observed in the second half of the 1980s, bringing the overall inflation rate to around 4%, which is half the peak but twice the target.
On the other hand, given the lag effect in monetary policy, the Fed may still announce a "monetary regime change", i.e., a signal that rates have peaked, and easing will follow a pause, the duration of which will be determined by economic data.
On the balance sheet, we have a contradictory inflation report, and it will be up to the Fed to determine the further direction of the stock indices and the dollar at tomorrow's meeting.
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So far, rate rises have not caused enough of a cooling of the economy and labour market that this would reduce domestic price pressures. The current monthly rate of increase of the core index has been observed in the second half of the 1980s, bringing the overall inflation rate to around 4%, which is half the peak but twice the target.
On the other hand, given the lag effect in monetary policy, the Fed may still announce a "monetary regime change", i.e., a signal that rates have peaked, and easing will follow a pause, the duration of which will be determined by economic data.
On the balance sheet, we have a contradictory inflation report, and it will be up to the Fed to determine the further direction of the stock indices and the dollar at tomorrow's meeting.
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What will be the signal tomorrow from FOMC?
Anonymous Poll
70%
ready for more hikes
30%
changes the policy regime
#WaveAnalysis
#CHFJPY reversed from support level 153.45
Likely to rise to resistance level 155.400
CHFJPY currency pair recently reversed up from the pivotal support level 153.45 (former strong resistance from the start of May).
The support level 153.45 was strengthened by the 20-day moving average and by the 38.2% Fibonacci correction of the previous sharp upward impulse wave (i).
Given the clear daily uptrend, CHFJPY can be expected to rise further toward the next resistance level 155.400 (top of the previous impulse wave (i)).
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#CHFJPY reversed from support level 153.45
Likely to rise to resistance level 155.400
CHFJPY currency pair recently reversed up from the pivotal support level 153.45 (former strong resistance from the start of May).
The support level 153.45 was strengthened by the 20-day moving average and by the 38.2% Fibonacci correction of the previous sharp upward impulse wave (i).
Given the clear daily uptrend, CHFJPY can be expected to rise further toward the next resistance level 155.400 (top of the previous impulse wave (i)).
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#WaveAnalysis #SPX
S&P 500 broke key resistance level 4310.00
Likely to rise to resistance level 4450.00
S&P 500 index recently broke sharply above the key resistance level 4310.00 (former multi-month high from August).
The breakout of the resistance level 4310.00 accelerated the active minor impulse wave 3 of the intermediate impulse wave (C) from the start of March.
Given the strong multi-month uptrend, S&P 500 index can be expected to rise further toward the next resistance level 4450.00 (target for the completion of the active impulse wave 3).
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S&P 500 broke key resistance level 4310.00
Likely to rise to resistance level 4450.00
S&P 500 index recently broke sharply above the key resistance level 4310.00 (former multi-month high from August).
The breakout of the resistance level 4310.00 accelerated the active minor impulse wave 3 of the intermediate impulse wave (C) from the start of March.
Given the strong multi-month uptrend, S&P 500 index can be expected to rise further toward the next resistance level 4450.00 (target for the completion of the active impulse wave 3).
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A heavy Bitcoin as a warning before the FOMC?
The crypto market cap fell 0.5% over the past 24h to $1.055 trillion. The recovery momentum was broken with the release of the US CPI, although other markets quickly reversed the initial move.
#Bitcoin lost 1% to $25.8K, and #Ethereum lost 0.5% to $1740. #BNB was going up against the market, adding 5.8%, while #XRP is losing 3.5%, having stumbled on profit-taking after rising.
The dynamics of Bitcoin are pulling the crypto market down faster than other assets, which could manifest as reduced demand in the most risk-sensitive part of the market spectre before the FOMC decision.
An uptrend was built through the local lows of the last four days in BTCUSD. But Bitcoin's attempts to accelerate gains the night before were met with a sell-off on the approach to $26.4K, the area of the previous consolidation. The Bears may have the upper hand right now. If so, the declines might accelerate to $25.7K, directly leading to $24.8K.
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The crypto market cap fell 0.5% over the past 24h to $1.055 trillion. The recovery momentum was broken with the release of the US CPI, although other markets quickly reversed the initial move.
#Bitcoin lost 1% to $25.8K, and #Ethereum lost 0.5% to $1740. #BNB was going up against the market, adding 5.8%, while #XRP is losing 3.5%, having stumbled on profit-taking after rising.
The dynamics of Bitcoin are pulling the crypto market down faster than other assets, which could manifest as reduced demand in the most risk-sensitive part of the market spectre before the FOMC decision.
An uptrend was built through the local lows of the last four days in BTCUSD. But Bitcoin's attempts to accelerate gains the night before were met with a sell-off on the approach to $26.4K, the area of the previous consolidation. The Bears may have the upper hand right now. If so, the declines might accelerate to $25.7K, directly leading to $24.8K.
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The Fed’s rate decision is the most anticipated event of the coming weeks. As usual, the markets have a consensus on what the Fed will do now but are more uncertain about its future moves. The tone of the statement and the assessment of the latest economic data are the primary sources of potential volatility.
Rate futures indicate a 95% probability of keeping the key rate at the 5.00-5.25% range, leaving only 5% for a chance of a hike.
However, the same FedWatch tool shows a 63% likelihood of a new 25-point rate hike in July. Interestingly, the expected rates shift downward significantly further ahead, with only 35% betting that there will be no rate cut before the end of the year.
So far this year, the markets have consistently expected a policy reversal - a sentiment the Fed has been trying to counter. This divergence of view promises to be the most heated topic at Powell’s press conference later today and in his subsequent speeches.
Rate futures indicate a 95% probability of keeping the key rate at the 5.00-5.25% range, leaving only 5% for a chance of a hike.
However, the same FedWatch tool shows a 63% likelihood of a new 25-point rate hike in July. Interestingly, the expected rates shift downward significantly further ahead, with only 35% betting that there will be no rate cut before the end of the year.
So far this year, the markets have consistently expected a policy reversal - a sentiment the Fed has been trying to counter. This divergence of view promises to be the most heated topic at Powell’s press conference later today and in his subsequent speeches.
The annual rate of overall inflation has declined for 11 consecutive months and is already below the key rate in May and June. The base effect (a 1.2% price increase for June 2022) suggests an even bigger drop in inflation, which would favour the Fed’s stance. A further rate hike seems unnecessary and risky for the banking system, which faced severe stress in March. It could also trigger a sharp policy reversal, worsening the financial sector’s problems and causing a steep economic slowdown.
On the other hand, a rate cut is not likely either. Higher monthly core CPI growth, on top of a tight labour market and relatively solid business reports, are reasons to maintain restrictive monetary conditions but not enough to tighten them.
If the Fed shares this view, it will signal a readiness to pause rate hikes while trying to change market expectations in favour of keeping current rates for the following quarters.
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On the other hand, a rate cut is not likely either. Higher monthly core CPI growth, on top of a tight labour market and relatively solid business reports, are reasons to maintain restrictive monetary conditions but not enough to tighten them.
If the Fed shares this view, it will signal a readiness to pause rate hikes while trying to change market expectations in favour of keeping current rates for the following quarters.
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🔔Upcoming FOMC @ 18:00 GMT with
rates expected to remain unchanged. 💰How will USD react?
rates expected to remain unchanged. 💰How will USD react?
Anonymous Poll
63%
Bullish 📈
37%
Bearish 📉
US PPI confirm disinflationary trends
US producer prices fell stronger than expected, potentially reinforcing the dovish argument at the Fed. For May, PPI declined by 0.3% m/m, more than the expected 0.1%, and the index gained a modest 1.1% y/y after 2.3% a month earlier.
In contrast to the core CPI, the PPI shows a return to desired inflation numbers, with the monthly price growth rate well within the Central Bank target.
US producer prices fell stronger than expected, potentially reinforcing the dovish argument at the Fed. For May, PPI declined by 0.3% m/m, more than the expected 0.1%, and the index gained a modest 1.1% y/y after 2.3% a month earlier.
In contrast to the core CPI, the PPI shows a return to desired inflation numbers, with the monthly price growth rate well within the Central Bank target.