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Inflation

AUD/USD rises as inflation jumpsThe Australian dollar has extended its rally with solid gains on Wednesday. In the North American session, AUD/USD is trading at 0.7080, up 0.51%. RBA policy makers are no doubt having a bad day at the office, as Australia's inflation climbed sharply in the fourth quarter. CPI rose to 8.4%, up from 7.3% in Q3 and above the consensus of 7.7%. The hot inflation report will douse hopes that inflation has peaked and there's little doubt that the RBA will have to continue raising rates. The markets had priced in a peak rate of 3.6%, but with the cash rate currently at 3.1% and more rate hikes on the way, it appears that the market is underestimating the terminal rate. The inflation release boosted the Australian dollar around 1% and to a five-month high after the CPI report, but the Aussie has pared much of those gains. The outlook for the Aussie is looking brighter for several reasons. The RBA will almost certainly continue raising rates over the next several months, commodity prices are strong and China's reopening will increase demand for Australian exports. There were no major releases out of the US today, but Thursday has a crowded data calendar, with GDP, durable goods and new home sales. GDP is expected to slow to 2.8%, down from 3.2% in Q3 but still respectable. On Wednesday, US PMIs pointed to a decline in the manufacturing and services sectors, pointing to cracks in the US economy as high rates have dampened economic growth. The US dollar has been under pressure as soft US numbers have increased expectations that the Fed will ease up on rate policy due to the slowing economy. A stronger-than-expected GDP would likely provide the US dollar with a much-needed boost, while a soft GDP reading should send the US dollar lower. AUD/USD is testing resistance at 0.7064. Above, there is resistance at 0.7160 0.6968 and 0.6872 are providing support
by OANDA
Crude oil a leading inflation indicatorTwo observation made the last two years between crude oil and CPI: 1) There were 5 waves up and 2) 3 significant peaks However, between the last 2 peaks of crude, it was a lower low follow-by its downtrend, and CPI followed this downtrend subsequently. Among many commodities, crude oil moves the most in tandem with CPI, but crude seems to lead in this study. Refer to the daily chart on your own, try drawing a downtrend line, you will see crude oil prices has broken above its downtrend line recently. If crude oil is going to transit to an uptrend from here, we will have to track CPI very closely. The inflation fear is still there. Did a video on this observation last week, refer to the link below. Crude Oil Futures Minimum fluctuation 0.01 = $10 0.10 = $100 1.00 = $1,000 10.00 = $10,000 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
NYMEX:CL1!Long
by konhow
2
It's happening! Blow-off top, Day 1.Traders, You all know that I have been expecting and discussing this day for many moons now, the day we break above our macro downtrend. Today is that day. Day 1 of what I expect to be a blowoff top that will surprise many investors, maybe a majority of investors. Before I get ahead of myself in enthusiasm, we will need another confirmation candle here on the daily. I'd love to see us close and open above the macro uptrend line as well, but that type of price movement is not necessary for confirmation. All we need to do is open and close tomorrow's candle above our macro downtrend and we are good to go. New highs in the U.S. stock markets should arrive sometime this year. I would anticipate by mid-summer to late fall. Enjoy the ride! Stew. [
ULong
by stewdamus
USD/CAD eyes retail salesThe Canadian dollar is unchanged on Friday, trading at 1.3466 in the European session. We could see some volatility in the North American session, as Canada releases retail sales. The markets are bracing for a downturn in retail sales for November, with a forecast of -0.5% m/m for the headline figure and -0.4% for the core rate. This follows a strong report in October, as the headline reading was 1.4% and core retail sales at 1.7%. If the releases are as expected or lower, it could be a rough day for the Canadian dollar. Today's retail sales release is the final major event prior to the Bank of Canada's meeting on January 25th. The markets have priced in a 25-bp increase, but a hold is also a possibility, especially with December inflation falling to 6.3%, down from 6.8%. The BoC has raised rates by some 400 basis points in the current rate-tightening cycle, which began in March 2022. Similar to the market outlook on the Fed's rate policy, there is significant speculation that the BoC could wind up its tightening at the first meeting of 2023 and then keep rates on hold. The BoC has said that future hikes will be determined by economic data, and there are signs of strength in the economy despite the Bank's aggressive rate policy. GDP expanded by 2.9% in Q3 which was stronger than expected and job growth sparkled in December, with over 100,000 new jobs. The markets will be looking for clues about future rate policy from the rate statement and BoC Governor Macklem post-meeting comments. 1.3455 is a weak support line, followed by 1.3328 1.3582 and 1.3707 are the next resistance lines
by OANDA
The Revival In the past two weeks, the market has seen a significant increase in bullish momentum leading many to believe that the proposed ‘echo bubble’ that many predicted for 2023 may indeed play out. It was initially unclear what was driving this momentum but the market gaining confidence that CPI will continue to decrease, as well as a temporary liquidity increase thanks to the ongoing US Debt Ceiling increase crisis, seem to be important factors. The U.S. CPI data published on the 12th of February was in line with expectations with a 0.1% reduction. There is evidence to suggest that if CPI inflation continues to fall in 0.1% increments M/M, and if recessionary predictions play out as expected, then the FED could potentially hit its 2% Y/Y target as soon as May. An important thing to note is that this was the last CPI print that will be calculated based on the current methodology that considers two years of data. February’s data will be calculated on a single year of data meaning that future 2023 CPI prints will be based on consumption in 2021 alone. Considering 2021 data instead of 2020 and 2021 will likely bring the upcoming CPI numbers down leading analysts to believe that the FED is indeed engineering a pivot. One event that could temporarily put a halt to the rally is that Genesis, the parent company of Grayscale, is said to be planning to apply for chapter 11 bankruptcy as soon as this week. It’s worth noting that the discount on $GBTC has widened to -43% over recent days after it had climbed back up to -36.5% following the December lows. Many analysts feel that the market already has this event priced in, however, it is certainly something to keep an eye on. From a technical perspective, Bitcoin broke out from the falling wedge pattern and ripped above $20,000. Bulls will be hoping for a weekly close above the $21,000 resistance which would light the way towards $28,700 which is the prior head and shoulders neckline and 61.8% Fibonacci retracement level of the $3,782 2020 low to $69,000 2021 high. Bears will support the prediction of Elliot Wave theory that the observed rally is part of a Wave 4 correction. This means the market could potentially still have a Wave 5 selloff to come which would test the lows. The above Bitcoin weekly chart shows that the bullish momentum the market is experiencing in 2023 lies within the boundaries of Wave 4 meaning that the market may not be not out of the woods yet. An important event to watch in the coming weeks is the FOMC meeting on the 1st of February. Following this meeting, the FED will release projections for the Federal Funds Rate in the coming quarters which will have a significant bearing on the short-run market direction. Volatility will be high around this time and caution should be exercised when entering positions.
by Coinrule
1
AUD/USD slides after soft Aussie job reportThe Australian dollar has extended its slide on Thursday. AUD/USD is trading at 0.6884 in Europe, down 0.82%. Australia's December employment report was weaker than expected, sending the Australian dollar sharply lower. The headline reading showed a loss of 14,600 in total employment, which may have soured investors. The release wasn't all that bad, as full-time jobs showed gains of 17,600, with part-time positions falling by 32,200. The unemployment rate remained at 3.5%, but this was a notch higher than the forecast of 3.4%. On the inflation front, recent releases point to inflation moving higher. November CPI rose to 7.3%, up from 6.9%, and the Melbourne Institute Inflation Expectations climbed to 5.6%, up from 5.2%. We'll get a look at the all-important quarterly inflation reading next week. Inflation came in at 1.8% q/q in Q3, and an acceleration in Q4 would force the Reserve Bank of Australia to consider raising rates higher and for longer than it had anticipated. The cash rate is currently at 3.10%, and I expect the RBA will raise it to 3.50% or a bit higher, which means we are looking at further rate hikes early in the year. The US dollar seems to take a hit every time there is a soft US release, and this week has had its share of weak data. The Empire State Manufacturing Index sank to -32.9, while headline and core retail sales both fell by -1.1%. PPI came in at -0.5%. All three releases were weaker than the November readings and missed the forecasts, indicating that cracks are appearing across the US economy, as the bite of higher rates is being felt. The markets are clinging to the belief that softer numbers will force the Fed to ease up on its pace of rate hikes and possibly end the current rate-cycle after a 25-bp increase in February. The Fed has done its best to dispel speculation that it will pivot, but I expect the US dollar to lose ground if key releases are weaker than expected. AUD/USD is testing support at 0.6893. Below, there is support at 0.6810 0.6944 and 0.7027 are the next resistance lines
by OANDA
$3000/Oz of GoldThere is a potential massive cup and handle on the Gold weekly chart. It should be noted that Cup and Handles don't usually play out over these very long time frames. Furthermore, the handle is not as clean as you might expect although online resources state ... "After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback." The handle doesn't always have to be a clean inverted arc. Given the above caveats, the chart is undeniably bullish even at first glace. Maybe we can see a Cup and Handle play out on this time scale. If it does come to fruition, expect a massive increase in volume as Gold breaks over the highest point in the "cup rim". The end result of such a move would target the $3000/Oz level. Enjoy. Please like and subscribe so I can get access to streaming and start producing more content.
TVC:GOLDLong
by FredCat5150
Correlation – Crude Oil & CPIStudies indicated Crude Oil is the best indicator to track the current inflation. It is also a leading indicator to inflation numbers? If that is true, we will have to track the crude oil prices very closely. Content: i. The most inline commodity with CPI ii. Can the Crude Oil track CPI? iii. Direction of Crude Oil Crude Oil Futures Minimum fluctuation 0.01 = $10 0.10 = $100 1.00 = $1,000 10.00 = $10,000 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
NYMEX:CL1!Long
by konhow
7
Pound jumps as inflation easesThe British pound is in full flight upwards on Wednesday. In the North American session, GBP/USD is trading at 1.2393, up 0.86%. UK inflation eased for a second straight month in December. Headline CPI dipped to 10.5%, down from 10.7% in November and just below the forecast of 10.6%. Core CPI, however, did not show an improvement as it remained unchanged at 6.3%. The downtrend is welcome news, but inflation still remains stubbornly high after hitting 11.1% in October, a 41-year high. The Bank of England has raised rates to 3.50% but clearly, more work needs to be done. The labour market remains robust, with wage growth climbing to 6.4% in December, up from 6.2% in November and brushing past the forecast of 6.1%. This is well below inflation levels, much to the chagrin of workers, but it is much too high for the BoE, which is focussed on curbing inflation. The BoE meets next on February 2nd and the markets have priced in a second-straight 50-bp increase. The BoE will also release updated economic forecasts, which could play a key role in the central bank's rate policy over the next several months. US consumers cut back on spending in December for a second consecutive month. Retail sales fell 1.1%, driven lower by a decline in vehicle sales due to rising interest rates for vehicle loans, as well as lower gas prices. This was lower than the November reading of -1.0% and the consensus of -0.8%. Core retail sales also declined by -1.1%, compared to -0.6% in November and the forecast of -0.8%. The disappointing numbers have sent the US dollar lower against the majors, as speculation rises that the Fed may have to ease up on the pace of rate hikes due to a weakening economy. GBP/USD has pushed above resistance at 1.2292 and 1.2352. The next resistance line is at 1.2455 There is support at 1.2189 and 1.2129
by OANDA
Putting All Your Eggs in One BasketCME: Pork Cutout ( CME:PRK1! ), CBOT: Corn ( CBOT:ZC1! ), Soybean Meal ( CBOT:ZM1! ) Diversification is a fundamental concept in investing. In order to minimize the chances that market volatility wipes out your entire net worth, it is important to put your money in several investments with different levels of risk and potential return. This is summarized nicely in a single phrase – “Don’t put all your eggs in one basket”. In 2022, however, if you have followed this time-honored advice and allocated your money carefully across major assets, you would have lost money! Why did diversification fail this time? Let’s look at the annual return by major investment category: • Stock Market: S&P 500, -13.9%, Nasdaq 100, -25.5% • Bond Market: 2-Year T-Notes, +6.7%, 10-Year T Notes: -10.6% • Precious Metals: Gold, -6.9%, Silver, +8.8% • Currencies: US dollar index, +6.7%, Euro, -4.1%, British Pound: -9.9% • Energy: WTI crude oil, +1.2%, Henry Hub natural gas, -12.7% • Agricultural Commodities: Wheat, -1.9%, Corn, +11.3% • Cryptocurrencies: Bitcoin, -53.3%, ETH, -55.4% A diversified portfolio is not necessarily low risk. In time of distress, assets thought to have low correlation could all move in the same direction – going down. Last year, geopolitical crisis, high inflation and central bank tightening took turns driving financial markets lower. When a major crisis breaks out, all correlation goes to 1. This happened in 1998, when the Russian debt default took down Long Term Capital Management (LTCM), the largest hedge fund in the world. It repeated in 2007 and 2008, when the subprime crisis bankrupted Bear Stern and Lehman Brothers, the mighty Wall Street investment banks. It also wiped out the entire asset class in credit default swaps and exotic mortgage-backed securities. In this past year, troubles in one crypto Exchange, FTX, drove all cryptocurrencies down. Bitcoin, Ethereum and stablecoins all lost value by half, even though the decentralized nature of the crypto market design is supposed to prevent this from happening. The Soaring Egg Price Ironically, if you put all your eggs in one basket, figurately, your investment would have doubled! According to price data reported by the Bureau of Labor Statistics, Large Shell Eggs, Grade A, have average retail price at $4.25 per dozen across US cities at the end of December, up 112% for the year. A portfolio of shell eggs beats the return of all 15 assets listed above, by a wide margin! A new term, Eggflation , has been invented to capture this phenomenon. Americans in recent years have increased egg consumption while reducing intake of red meat in their diet, according to data from the U.S. Department of Agriculture. Interesting statistics : the total flock of egg-laying hens in the U.S. is around 320 million, almost matching the population of people. Each grown hen could lay as many as 320 eggs a year. And each of us eats about as many eggs as one hen can lay in a year. Egg consumption has grown in part because more families are eating them as their main protein diet. As demand for eggs has risen, chicken production in the U.S. has slumped as we are currently experiencing the most severe avian (bird) flu epidemic in the US history. Nearly 58 million chickens have been infected with bird flu as of January 6th, according to the USDA. Infected birds must be slaughtered, causing egg supplies to fall and egg prices to surge. So far, the total flock of egg-laying hens is down about 5% from its normal size, as farmers work hard to replace their flocks as soon as they can after an outbreak. On average, new-birth chicks take four months to grow into egg-laying hens. Egg prices are not likely to fall in coming months until decease-free hens are fully grown. While US CPI has cooled to 6.5% in December, inflation for food items is much higher at 10.4%. Eggs are just one of many food staples that skyrocketed in price in 2022. Margarine costs in December surged 44% from a year ago, while butter rose 31%, according to the CPI data. Egg Futures Contracts in the US and in China CME Group, the world’s largest Derivatives Exchange, traced its root to the Chicago Butter and Egg Board founded in 1898. Standardized egg futures contract started trading in 1919, as the Exchange reorganized as Chicago Mercantile Exchange. CME egg futures were actively traded for sixty years. As the egg industry consolidated and egg prices stabilized over the years, the contract was delisted in 1982. In November 2013, China’s Dalian Commodity Exchange launched its own Egg Futures. The contract is based on 5 metric tons of shell eggs. As a consultant, I assisted DCE in contract launch as well as ongoing support. On January 13th, daily trading volume of DCE egg futures was 98,893 lots, with open interest standing at 204,202 contracts. A Case for Intermarket Spread The huge surge in egg prices amplifies the market risks for egg industry. Without the price discovery function at the futures market, farmers would have a hard time projecting future price trend. They rely on cash market prices to make production decisions. It takes four months to grow chicks into egg-laying age. Each commercially-raised hen will lay eggs for 1-1/2 years before being slaughtered. For each flock, farmers face price risks for up to two years. The main feed ingredients, corn and soybean meal, could be hedged with CBOT futures contracts. But egg and chicken prices are exposed naked. Farmers are rapidly expanding their flocks as egg price skyrocketed. At some point, there will be too many chickens in the henhouse, causing egg price to crash. Maybe an egg futures contract could make a big difference. I think it is time to bring back the CME egg futures. Until then, you could consider intermarket spread if you want to participate in the market: Buy Pork Cutout (PRK) and Sell Corn (ZC) and Soybean Meal (ZM) futures. August PRK rose 14% from October and currently prices at 30% above the front February contract. • Like Hog Margins, this intermarket spread attempts to capture the profit margins in egg production. This is based on projected up trend in both pork and egg prices. A second intermarket spread is to Buy DCE Egg Futures (JD) and Sell CBOT Corn (ZC) and Soybean Meal (ZM) futures, if you could trade the Chinese futures market. Finally, you could buy shell eggs in cash market and store them in a cold storage. You would make money if future egg price surge could cover the storage cost. Happy trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CME:PRKQ2023Long
by JimHuangChicago
9