The US CPI exceeded expectations but the US T-Bond market didn’t sell off. Higher inflation should mean a higher probability that the Fed is going to raise rates aggressively and in such an environment bonds lose value. Therefore, on the surface, the bond market should be sliding and yields rising higher. So, what is happening? The answer is that there were some signs of peak inflation in the report. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The annual inflation growth for April slowed down and came in at 8.3%. This represented a 0.2% drop from the 41-year high of 8.5% in March. It was, however, above the analysts-predicted number of 8.1%. US energy prices increased 30.3%, (less than 32% in March). Food prices climbed by 9.4%, which is the biggest increase since April 1981. Prices for shelter increased by 5.1% (5% March) and new cars contributed to the rising cost of living too (13.2% vs 12.5%). The monthly number for consumer prices was up 0.3% (0.2% expected) but came in below a 16-year high of 1.2% in March. Heads up for the US PPI release later on today!
In today’s report trade ideas, analysis and key technical levels on
- USNGAS – Still bullish above 7.20
- USOIL – Bullish engulfing candle
- BTCUSD – Breaking a key support level
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USNGAS lost some momentum late in the US session yesterday but remains bullish above the 7.20 level. For the benefit of new readers, I repeat my bullish case for USNGAS. After the market reversed at 6.477 support level and reversed the down move I’m looking for long trade opportunities in this market above a minor support level at 7.20. My first target is at 7.968 and the second target is at 8.90. Whilst Russia might not be able to compete with Nato countries when it comes to traditional warfare (see here) it’s more than capable of leveraging its stranglehold over European energy supplies. This means the upside risk in the natural gas market is so enormous that hedgers and traders alike are likely to position themselves accordingly. Practically this means that it’s highly likely that there’s more buying interest than selling or shorting interest in this market. Against this background, my targets are rather conservative. But as always, trade only what you see and not what you expect to see. Alternative scenario: USNGAS drops below the minor support at 7.20 and trades back to yesterday’s low. If there are no buyers we should expect to see the price move to 6.30.
USOIL created a bullish engulfing candle in the daily chart yesterday indicating higher prices over the next couple of days at least. There are China-related recession worries holding the price down (oil price has been moving below 108.75 for several weeks) but at the same time supply concerns created by Russia’s invasion of Ukraine have kept the bids in oil relatively firm. Traders wait for the EU to decide how and when to proceed with the Russian energy embargo. There needs to be unanimous support for the planned embargo and Hungary has opposed it. The ban would be highly disruptive to Hungary’s economy. Oil correcting lower at the time of writing this but is bullish if buyers take control of the market above yesterday’s low (97.15). Therefore, I’m looking for long signals above the 97.15 level with T1 at 106.60 and T2 at 111.40. Alternative scenario: Oil breaks the 97.15 support and moves to 94.80. New readers: Please note that all my trading ideas are subject to price action verifying the thesis. If there’s no evidence of institutional buying it’s better not to buy. Only after price action proves the idea correct, should we consider applying our toolkit for long trades. No point in catching falling knives. They just tend to hurt.
BTCUSD has broken a highly significant support level at 28600. I have warned about regulatory and environmental risks in bitcoin and most recently said just a few days ago (here) that the current risk aversion sentiment means there’s a rather strong downside risk associated with this market. I made a technical measured-move projection that indicated the price of bitcoin could move down to the 12500 – 12600 range if the 28600 support breaks. Now the level has broken and as long as the market doesn’t rally decisively above 28600 my T1 for bitcoin is at 24700 and T2 at 20300. Alternative scenario: Bitcoin rallies decisively above 28600 and trades back to 33000.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March nonfarm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The US annual inflation growth for April slowed down and came in at 8.3%. This represented a 0.2% drop from the 41-year high of 8.5% in March. It was, however, above the analysts-predicted number of 8.1%.|
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The Next Main Risk Events
- USD – PPI m/m
- USD – Core PPI m/m
- USD – Unemployment Claims
- USD – Prelim UoM Consumer Sentiment
- USD – FOMC Member Mester Speaks
- CNY – Retail Sales y/y
- EUR – EU Economic Forecasts
- USD – Empire State Manufacturing Index
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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