CPI data came out at 7.1% yesterday and core CPI (M0M) was announced at 0.1% which both were 0.2% and 0.1% lower respectively. This is a bearish sign for the Dollar as inflation data is slowing at a faster rate than expected.
Additionally, this indicates that aggressive rate hikes have been effective within the US economic machine and we can expect softening in the monetary policy as well as a slowdown in rate hike expectations.
The pivot has been confirmed with a total reversal in the Dollar as it fell beneath $104 to touch $103.5 on the back of cooled offed inflation data. Jerome Powell will be making a speech later on today as FOMC minutes are released and he will follow up with his press conference.
The 50 basis point rate hike could be taken as bearish for the Dollar as we have seen consecutive 75 basis point rate jokes in the past. This is a slight slowdown in the pace and we can expect lower incremental rate hikes moving into 2023.
Gold has pushed up significantly as the opportunity cost of holding the precious metal has lowered since the Dollar is not that strong. We expect investors to turn to risk on assets now if the Dollar continues to fall.
Analysts are expecting crypto to strengthen with the Dollar weakness causing reactions across the market. A more dovish tone out of the Fed as we approach the end of the year would be likely.
Finally, markets can conclude that the rate hikes have been optimal in slowing down the rising inflation.
In today’s DIFX Analytics, we’re going to look into the following assets:
Bitcoin gains after Dollar falls
Bitcoin broke $18,000 briefly yesterday after the inflation data came out below expectations. We saw the RSI trend line from yesterday broken to the upside.
The 4-hour chart is looking bullish with resistance levels broken and not much holding it back until the key level at $18,600. The dollar is controlling the market at the moment so we should keep an eye on the interest rate and FOMC minutes later this evening which will be vital for any trader.
Soft CPI data pushes the Dollar down
CPI data came out at 7.1% as opposed to the forecasted 7.3%. This is bearish news as it indicates that the Fed will not need to hike rates too aggressively coming into 2023.
CPI is a major indicator of inflation in the US economy and as it slows down, we can believe that interest rate hikes have been working.
Jerome Powell has a speech today after the rate hike in the evening. He is bound to discuss a softer stance moving forward which will further downside pressure on the Dollar.
Ether moves up post-CPI data
As soon as the CPI data came out lower than expected, we saw a massive push-up in Ether from $1285 to $1350. This counts for a 4.88% push upward at the time of the data release.
Since then, we have seen the price pull back to $1305 and settle at $1320. We can expect further retracement downside if the Dollar pushes back up. If the Dollar continues to fall, Ether would continue to rise further.
Gold breaches $1800 again
Gold broke into the $1800 zone for the 3rd time in 2 weeks. CPI data cooled off which was bearish for the Dollar and bullish for Gold.
As the dollar fell yesterday, we saw commodities rise. The attractiveness to hold Gold as an investment is returning due to the falling price of the Dollar.
For the past year, Gold has fallen as the opportunity cost to hold other assets had risen. As this opportunity cost fades away, we should see Gold’s value strengthen into the new year.
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DIFX shall not be responsible for any loss arising from any investment based on any recommendation, forecast, or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee, or implication by DIFX that the forecast information will eventuate, that clients will profit from the strategies herein, or that losses in connection therewith can or will be limited. Trades by the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses in particular if the conditions or assumptions used for the forecast or mentioned in the analysis do not eventuate as anticipated and the forecast is not realized.
