The initial reaction for the CPI data was a plunge of 104 pips within a 15 minute period which was later erased by a sharp reverse. The pair rallied as much as 175 pips before it started to stabilize. The question then becomes why would a strong CPI data (which is technically good for the dollar) make the dollar weaker?
Looking at the Fed rate monitor tool, a 50bps is not even in the discussion anymore. The majority of the market is pricing in a 75bps rate hike in the upcoming meeting.
The hot topic in the previous week was the announcement of a production cut of 2 million bpd by OPEC+. This helped support the breakout from its bearish channel. However, the demand outlook wasn’t optimistic as recessionary fears materialised with concerns that the Fed may overtighten their policies due to hotter than expected inflation. Furthermore, China being the top global oil importer is still battling Covid thus further reducing oil demand.
From a technical standpoint, oil is retesting the broken channel and may continue to range for awhile as marked on the chart. The supply cut plan may buoy oil prices in the short term while investors wait for demand pick up again.
Bitcoin was on a decline leading up to the US CPI data and reversed sharply as soon as the data came out. Market is expecting the Fed to raise rates by at least 75bps in two weeks, and that is no good news for Bitcoin and risk assets in general.
A technical analysis on the chart shows that the pair has been consolidating in a tight range of less than $2500. The sharp rally last night brought Bitcoin back to the middle of the range and now we are eager to see which way it will break, though the downside is more likely.
Financial Market Analyst
Sign up and trade with Alchemy Markets now.
The only place where you get to trade more than 1000 instruments including Stocks, FX, Cryptos, and many more with ultra-low spreads and institutional-grade liquidity.