Reaction to US inflation confirms dollar’s bull trend
The release of last October’s US inflation data was a real blockbuster for the markets, creating powerful one-way movements.
Consumer prices rose 0.3% in January, while annual inflation slowed from 3.4% to 3.1% instead of the expected 2.9%. The core CPI rose 0.4%, the highest since May last year, and the annual growth rate of the index remained at 3.9% instead of the expected slowdown to 3.7%.
Tuesday’s release was the third in a row to beat expectations and the second time the miss was more than 0.1 percentage point, which is considered significant for this indicator. The release triggered an impressive repricing of monetary policy expectations, which impacted many market sectors.
The release of last October’s US inflation data was a real blockbuster for the markets, creating powerful one-way movements.
Consumer prices rose 0.3% in January, while annual inflation slowed from 3.4% to 3.1% instead of the expected 2.9%. The core CPI rose 0.4%, the highest since May last year, and the annual growth rate of the index remained at 3.9% instead of the expected slowdown to 3.7%.
Tuesday’s release was the third in a row to beat expectations and the second time the miss was more than 0.1 percentage point, which is considered significant for this indicator. The release triggered an impressive repricing of monetary policy expectations, which impacted many market sectors.
The Dollar Index has gained more than 1% from the lows immediately after the release. Its current level of 104.7 was last seen on 14 November, during another inflation release.
Some observers point to the “January effect”, where prices can move sharply, but this is not indicative. We note, however, that since last October, we can talk about a halt in the deceleration of annual inflation, with monthly growth rates picking up. This is particularly evident in the core index, while raw materials and energy continue to make a negative net contribution to the total.
A month earlier, a similar surprise in the data was largely shrugged off by the markets, which were then 80% certain of a rate cut on 20 March. Following the Fed’s impressive management of expectations and a strong employment report, the odds of such an outcome are now at 9%.
Some observers point to the “January effect”, where prices can move sharply, but this is not indicative. We note, however, that since last October, we can talk about a halt in the deceleration of annual inflation, with monthly growth rates picking up. This is particularly evident in the core index, while raw materials and energy continue to make a negative net contribution to the total.
A month earlier, a similar surprise in the data was largely shrugged off by the markets, which were then 80% certain of a rate cut on 20 March. Following the Fed’s impressive management of expectations and a strong employment report, the odds of such an outcome are now at 9%.
In addition, January’s inflation figures cast doubt on a May rate cut. The odds have fallen from 64% to 33%. Such sharp repricing is favourable for the dollar. It also lays the groundwork for the technical signals for dollar growth that emerged in early February.
Technically, the Dollar Index now has a direct path to 105.50. A return to this level would erase the decline in the November inflation release just after the Fed’s dovish turn. A more ambitious target for dollar bulls could be the 106.5 area, which would take the dollar back to its October highs. However, further upside will require much more effort and a qualitative change in fundamentals.
Technically, the Dollar Index now has a direct path to 105.50. A return to this level would erase the decline in the November inflation release just after the Fed’s dovish turn. A more ambitious target for dollar bulls could be the 106.5 area, which would take the dollar back to its October highs. However, further upside will require much more effort and a qualitative change in fundamentals.
#WaveAnalysis
#WTI crude oil reversed from resistance level 78.00
Likely to fall to support level 74.00
WTI crude oil recently reversed down from the pivotal resistance level 78.00 (former support from August, which has been reversing the price from November), intersecting with by the upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from September.
The downward reversal from the resistance level 78.00 stopped the previous impulse waves 3 and (3).
Given the improvement of the global risk sentiment, WTI crude oil can be expected to fall further to the next support level 74.00.
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#WTI crude oil reversed from resistance level 78.00
Likely to fall to support level 74.00
WTI crude oil recently reversed down from the pivotal resistance level 78.00 (former support from August, which has been reversing the price from November), intersecting with by the upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from September.
The downward reversal from the resistance level 78.00 stopped the previous impulse waves 3 and (3).
Given the improvement of the global risk sentiment, WTI crude oil can be expected to fall further to the next support level 74.00.
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#WaveAnalysis
#EURGBP reversed from support level 0.8510
Likely to rise to resistance level 0.8575
EURGBP currency pair recently reversed up from the key support level 0.8510 (which has been reversing the price from July), strengthened by the lower daily Bollinger Band.
The upward reversal from the support level 0.8510 created the daily Japanese candlesticks reversal pattern Bullish Engulfing.
EURGBP currency pair can be expected to rise further to the next resistance level 0.8575 (top of the previous minor correction ii).
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#EURGBP reversed from support level 0.8510
Likely to rise to resistance level 0.8575
EURGBP currency pair recently reversed up from the key support level 0.8510 (which has been reversing the price from July), strengthened by the lower daily Bollinger Band.
The upward reversal from the support level 0.8510 created the daily Japanese candlesticks reversal pattern Bullish Engulfing.
EURGBP currency pair can be expected to rise further to the next resistance level 0.8575 (top of the previous minor correction ii).
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The #crypto market continues to rise, adding 2.3% to the level of 24 hours ago. Bitcoin's capitalisation has surpassed 1 trillion, and its share of all coins is estimated at 52.5% by CoinMarketCap. The increase in share is due to USDT and the relative stagnation of the share of other cryptocurrencies outside the top five.
#Bitcoin's price has surpassed $52.2K, the highest level since the end of 2021. Buyers in the first cryptocurrency are so strong that we don't even see a prolonged consolidation. This dynamic reinforces our view that the next meaningful shakeout may not come before the approach of 60K, where there were several inflexion points in 2021.
#Ethereum is updating highs, but this is the highest level since July 2022. #Solana has been at highs since late December last year, #Cardano has only recovered to levels from 13 January, and #XRP has been at its highest since 22 January. Clearly, the bigger the coin now, the more attention it gets.
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#Bitcoin's price has surpassed $52.2K, the highest level since the end of 2021. Buyers in the first cryptocurrency are so strong that we don't even see a prolonged consolidation. This dynamic reinforces our view that the next meaningful shakeout may not come before the approach of 60K, where there were several inflexion points in 2021.
#Ethereum is updating highs, but this is the highest level since July 2022. #Solana has been at highs since late December last year, #Cardano has only recovered to levels from 13 January, and #XRP has been at its highest since 22 January. Clearly, the bigger the coin now, the more attention it gets.
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Oil once again failed to confirm the bullish trend on Wednesday, moving lower under pressure from news of a jump in US inventories.
The Department of Energy reported that commercial inventories rose by 12 million barrels last week, bringing the three-week total to 18.8 million barrels. Analysts had forecast an average increase of 5.5 million barrels. At the same time, Strategic Petroleum Reserve stocks rose by 0.75 million for the week and 2.25 million over three weeks. This short-term view highlighted that America is hoarding oil, which is bearish.
But it's also worth looking at the bigger picture. Commercial inventories are now 6.8% lower than the same week last year and remain close to the lows of the last nine years. There is 3.5% less fuel in the strategic stockpile than a year ago, and the build-up has been prolonged from a 41-year low, and it will take years, if not a decade, to fully recover to the peak.
The Department of Energy reported that commercial inventories rose by 12 million barrels last week, bringing the three-week total to 18.8 million barrels. Analysts had forecast an average increase of 5.5 million barrels. At the same time, Strategic Petroleum Reserve stocks rose by 0.75 million for the week and 2.25 million over three weeks. This short-term view highlighted that America is hoarding oil, which is bearish.
But it's also worth looking at the bigger picture. Commercial inventories are now 6.8% lower than the same week last year and remain close to the lows of the last nine years. There is 3.5% less fuel in the strategic stockpile than a year ago, and the build-up has been prolonged from a 41-year low, and it will take years, if not a decade, to fully recover to the peak.
Admittedly, that is unlikely ever to happen. For now, the US continues to produce oil at a record 13.3 million bpd, is becoming a net exporter of the fuel and is promoting alternative energy investment at the government level. In such an environment, there is simply no need to maintain the high stockpiles of the 1990s, let alone the higher levels of the 2010s.
Either way, the inventory news emboldened the bears and added to the pressure on oil, which retreated 3.5% from Wednesday's highs. This sell-off has once again stopped oil's attempt to settle above its 200-day moving average. It hasn't been broken since November last year.
Either way, the inventory news emboldened the bears and added to the pressure on oil, which retreated 3.5% from Wednesday's highs. This sell-off has once again stopped oil's attempt to settle above its 200-day moving average. It hasn't been broken since November last year.
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This is a relatively strong bearish signal, which creates downside potential in the coming days. However, the downside is limited by the equally important 200-week average line, which runs through the $72.0/bbl WTI/$75.0/bbl Brent level.
Oil has been tied between the ranges of 72-79 for WTI and 75-82 for Brent for many months now. Only when we break out of this range can we talk about a new trend in oil. Perhaps caused by the shrinking economies of Japan and the UK, as well as recession forecasts in Germany, combined with a slowing China.
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Oil has been tied between the ranges of 72-79 for WTI and 75-82 for Brent for many months now. Only when we break out of this range can we talk about a new trend in oil. Perhaps caused by the shrinking economies of Japan and the UK, as well as recession forecasts in Germany, combined with a slowing China.
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US retail sales fell 0.8% in January instead of the expected 0.2% decline. Sales excluding autos fell 0.6% instead of the expected 0.2% rise. This drop took sales back to their lowest level since last July. Fuel sales last month were at their lowest level since October 2021, while building materials sales were at their lowest level since September this year.
US retail sales are calculated in nominal terms (not adjusted for inflation) and are now 1.1% higher than a year ago. This is well below the 3.1% year-on-year rise in prices and could be seen as a deflation of consumer activity despite the strong labour market.
Today's industrial production figures also disappointed, with a 0.1% decline in the headline index (expected +0.2% after 0.0% in the previous two months).
US retail sales are calculated in nominal terms (not adjusted for inflation) and are now 1.1% higher than a year ago. This is well below the 3.1% year-on-year rise in prices and could be seen as a deflation of consumer activity despite the strong labour market.
Today's industrial production figures also disappointed, with a 0.1% decline in the headline index (expected +0.2% after 0.0% in the previous two months).
The American consumer is the primary driver of the economy, and industrial production, which accounts for around 10% of GDP, is often a leading indicator of the economic cycle. Both of these critical indicators have simultaneously pointed to an alarming and sudden slowdown.
This should give pause to those who assume that monetary easing is imminent but are putting a new spin on it. It may no longer be a glorious victory over inflation without a recession but a concern for economic growth and an attempt to ease monetary conditions to cushion the decline.
This is negative news for the dollar as it has the potential to push markets closer to the expected date of the rate cut. In the short term, equity indices may take this news as a positive. However, for the long-term investor, it is clearly a cloud on the horizon that brings the bull market in equities closer to breaking.
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This should give pause to those who assume that monetary easing is imminent but are putting a new spin on it. It may no longer be a glorious victory over inflation without a recession but a concern for economic growth and an attempt to ease monetary conditions to cushion the decline.
This is negative news for the dollar as it has the potential to push markets closer to the expected date of the rate cut. In the short term, equity indices may take this news as a positive. However, for the long-term investor, it is clearly a cloud on the horizon that brings the bull market in equities closer to breaking.
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#WaveAnalysis #SPX
S&P 500 reversed from support level 4930.00
– Likely to rise to resistance level 5050.00
S&P 500 index recently reversed up from the support level 4930.00 (former support from the end of January), intersecting with the 20-day moving average and the support trendline of the daily up channel from November.
The upward reversal from the support level 1.3530 stopped the previous minor correction (ii).
Given the clear daily uptrend, S&P 500 index can be expected to rise further to the next resistance level 5050.00.
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S&P 500 reversed from support level 4930.00
– Likely to rise to resistance level 5050.00
S&P 500 index recently reversed up from the support level 4930.00 (former support from the end of January), intersecting with the 20-day moving average and the support trendline of the daily up channel from November.
The upward reversal from the support level 1.3530 stopped the previous minor correction (ii).
Given the clear daily uptrend, S&P 500 index can be expected to rise further to the next resistance level 5050.00.
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#WaveAnalysis
#USDCAD reversed from resistance level 1.3530
Likely to fall to support level 1.3400
USDCAD currency pair recently reversed down from the key resistance level 1.3530 (which has been reversing the price from the middle of January), intersecting with the upper daily Bollinger Band and the 50% Fibonacci correction of the downward ABC correction (2) from the start of November.
The downward reversal from the resistance level 1.3530 stopped the previous impulse waves 3 and (3).
Given the strength of the resistance level 1.3530, USDCAD currency pair can be expected to fall further to the next support level 1.3400.
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#USDCAD reversed from resistance level 1.3530
Likely to fall to support level 1.3400
USDCAD currency pair recently reversed down from the key resistance level 1.3530 (which has been reversing the price from the middle of January), intersecting with the upper daily Bollinger Band and the 50% Fibonacci correction of the downward ABC correction (2) from the start of November.
The downward reversal from the resistance level 1.3530 stopped the previous impulse waves 3 and (3).
Given the strength of the resistance level 1.3530, USDCAD currency pair can be expected to fall further to the next support level 1.3400.
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The #crypto market is up 1.7% from 24 hours ago, with Bitcoin stuck between $51.5K and $52.5K. Buying interest has focused on the major altcoins such as #BNB (+3.6%), #XRP (+3.5%) and #Cardano (+4%), which were lagging the day before, but they are just trying to keep up with Bitcoin's rise. In our opinion, altcoins' time will come when the first cryptocurrency has reached its historic highs and looks too expensive. But it could be another year before that happens.
Moreover, history suggests the market will pick new altcoins with each new growth cycle. The stars of the past era don't always manage to rewrite their all-time highs, so there's no rush to pick altcoins at this stage of the cycle.
As a result of another recalculation, the difficulty of mining the first cryptocurrency increased by 8.24%. The indicator updated the historical maximum at 81.7 T. The average hashrate for the period since the previous change in value was 583.92 EH/s.
Moreover, history suggests the market will pick new altcoins with each new growth cycle. The stars of the past era don't always manage to rewrite their all-time highs, so there's no rush to pick altcoins at this stage of the cycle.
As a result of another recalculation, the difficulty of mining the first cryptocurrency increased by 8.24%. The indicator updated the historical maximum at 81.7 T. The average hashrate for the period since the previous change in value was 583.92 EH/s.
UK retail sales rose by 3.4% in January, almost recovering the previous month's dip. Last month's miss led to talk of a looming recession despite a strong labour market. The new data reduced the level of concern about stagnation, but it is too early to talk about a new impetus to consumption growth.
The current level of sales is 0.7% higher than in January last year. Moreover, the retail sales index has been hovering around its current level all this time, reflecting a prolonged period of stagnation. In the UK, retail sales stagnated between 2008 and 2013, following a period of above-trend growth. The unemployment rate was indeed around 8% at the time, compared with 3.8% today, which was close to cycle lows by historical standards.
It would not be surprising if, this time around, the retail sector were to go sideways for another year, cooled by high interest rates and the slowing stabilisation of price growth. Or, in the event of a contraction in the labour market, a further decline.
The current level of sales is 0.7% higher than in January last year. Moreover, the retail sales index has been hovering around its current level all this time, reflecting a prolonged period of stagnation. In the UK, retail sales stagnated between 2008 and 2013, following a period of above-trend growth. The unemployment rate was indeed around 8% at the time, compared with 3.8% today, which was close to cycle lows by historical standards.
It would not be surprising if, this time around, the retail sector were to go sideways for another year, cooled by high interest rates and the slowing stabilisation of price growth. Or, in the event of a contraction in the labour market, a further decline.
The latest retail sales figures, while beating expectations and easing worries about the UK economy, do not inspire long-term optimism. In terms of FX, this does not suggest a sustained strengthening of the Pound against its major rivals.
While GBPUSD got support on dips to its 200-day moving average, it will be complicated to develop an offensive from this point. In all the time since November that the GBPUSD has been above this trendline, it has failed to make gains and has remained under selling pressure.
Simply put, there is now a greater chance of a break below the 200-day and a consolidation below it, which would open the way to the 1.21 level we saw in October. However, if the problems in the UK economy continue to mount, a two-year decline towards 1.10 could begin.
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While GBPUSD got support on dips to its 200-day moving average, it will be complicated to develop an offensive from this point. In all the time since November that the GBPUSD has been above this trendline, it has failed to make gains and has remained under selling pressure.
Simply put, there is now a greater chance of a break below the 200-day and a consolidation below it, which would open the way to the 1.21 level we saw in October. However, if the problems in the UK economy continue to mount, a two-year decline towards 1.10 could begin.
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US housing starts plunged 14.8% to 1.331m in January, reversing four months of growth and taking the figure back to last year’s lows. This is in sharp contrast to analysts’ average expectations of 1.450m.
The number of building permits issued fell less dramatically, by 1.5% to 1.47 million, against expectations of 1.51 million.
The worse-than-expected data added to fears of a slowdown in final demand after the previous day’s disappointing retail sales data. This is bearish news for the dollar as it brings the date of monetary easing closer.
The number of building permits issued fell less dramatically, by 1.5% to 1.47 million, against expectations of 1.51 million.
The worse-than-expected data added to fears of a slowdown in final demand after the previous day’s disappointing retail sales data. This is bearish news for the dollar as it brings the date of monetary easing closer.
Working against this argument, however, is inflation. The core PPI rose 0.5% m/m and accelerated to 2.0% y/y last month. Economists, on average, expected a slowdown to 1.6% y/y. This is another inflation surprise after the upbeat CPI data earlier in the week.
Isn’t this the realisation of the Fed’s nightmare of accelerating inflation and economic slowdown at the same time? In our view, it is more likely that the FOMC will opt for an extended pause in this environment, which should be bearish for equities and bullish for the dollar.
Isn’t this the realisation of the Fed’s nightmare of accelerating inflation and economic slowdown at the same time? In our view, it is more likely that the FOMC will opt for an extended pause in this environment, which should be bearish for equities and bullish for the dollar.
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#WaveAnalysis
#Gold reversed from support level 1980.00
Likely to rise to resistance level 2050.00
Gold recently reversed up from the support level 1980.00 (which formed the daily Morning Star in December), intersecting with the lower daily Bollinger Band and the 61.8% Fibonacci correction of the upward impulse from November.
The upward reversal from the support level 1980.00 created the daily Japanese candlestick reversal pattern Doji, which marked the end of the previous minor correction 2.
Given the clear daily uptrend, Gold can be expected to rise further to the next resistance level 2050.00 (which reversed the price twice from January).
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#Gold reversed from support level 1980.00
Likely to rise to resistance level 2050.00
Gold recently reversed up from the support level 1980.00 (which formed the daily Morning Star in December), intersecting with the lower daily Bollinger Band and the 61.8% Fibonacci correction of the upward impulse from November.
The upward reversal from the support level 1980.00 created the daily Japanese candlestick reversal pattern Doji, which marked the end of the previous minor correction 2.
Given the clear daily uptrend, Gold can be expected to rise further to the next resistance level 2050.00 (which reversed the price twice from January).
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#WaveAnalysis
#EURUSD reversed from support level 1.0730
Likely to rise to resistance level 1.0850
EURUSD currency pair recently reversed up from the support level 1.0730 (previous monthly low from December), intersecting with the lower daily Bollinger Band and the 61.8% Fibonacci correction of the upward impulse from October.
The upward reversal from the support level 1.0730 created the strong daily Japanese candlestick reversal pattern Morning Star.
Given the continuation of the USD outflows, EURUSD currency pair can be expected to rise further to the next resistance level 1.0850.
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#EURUSD reversed from support level 1.0730
Likely to rise to resistance level 1.0850
EURUSD currency pair recently reversed up from the support level 1.0730 (previous monthly low from December), intersecting with the lower daily Bollinger Band and the 61.8% Fibonacci correction of the upward impulse from October.
The upward reversal from the support level 1.0730 created the strong daily Japanese candlestick reversal pattern Morning Star.
Given the continuation of the USD outflows, EURUSD currency pair can be expected to rise further to the next resistance level 1.0850.
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