US Dollar May Rise Further as PPI Data Stokes Inflation Fears

※US Dollar might continue higher if PPI data stokes reflation worries

※Commodity FX may suffer outsized losses, AUD/USD at key barrier Nasdaq

※Dow Jones futures open the door for a consolidative pause

Financial markets registered mixed performance in Asia-Pacific trade.

Regional stock exchanges picked up on the negative lead from Wall Street, shedding close to 2 percent. That was after higher-than- expected US CPI figures stoked worries about rapid reflation that might force the Fed to pull back monetary stimulus faster than anticipated (as expected).

Price action in the G10 FX space was decidedly more muted. While APAC bourses had room to catch up having been closed during the prior day’s fireworks, the “always-on” spot currency markets had already on-boarded the news and settled into consolidation mode.

Commodities offered a range of outcomes. Cyclically-sensitive crude oil and base metals such aluminum, copper and iron ore echoed the broader risk-off mood, tracking lower. Rates-driven precious metals echoed FX market dynamics, with gold and silver retracing a bit higher after yesterday’s steep losses.

Looking ahead, a nearly empty economic calendar in European trading hours is likely to put April’s US PPI report in the spotlight. The core wholesale inflation rate is expected to rise to 3.8 percent on-year. An upside surprise may add to fears of stickier price pressures than can be written off as post-Covid rebasing.Indeed, yesterday’s CPI stock was hardly an isolated incident. Realized US inflation data outcomes have topped baseline forecasts by a widening margin recently. In fact, figures from Citigroup put the disparity at the highest in nearly 13 years.

More of the same may give Treasury bond yields another upward jolt, driving the US Dollar higher against its major counterparts. If yesterday’s price dynamics prove instructive (see chart below), commodity currencies like the Australian, Canadian and New Zealand Dollars may suffer outsized losses in this scenario.

However, it may be that investors have already priced in an April price growth jump already, leaving the PPI report with less market- moving potential than its higher-profile CPI analog. This might leave a bit of room for risk-on retracement across markets.

Tellingly, futures tracking the Nasdaq 100 index – where a tilt toward tech makes for outsized sensitivity to higher borrowing costs – are pointing higher. Contracts on the cash-rich Dow Jones Industrial Average are down in the meanwhile.

This might mean that the “sooner Fed tightening” story has taken a bit of a consolidative pause. The Greenback is vulnerable in the near term if this proves to be the path of least resistance, at least until US retail sales and consumer confidence reports capture the spotlight Friday.

AUD/USD TECHNICAL ANALYSIS – HEAD & SHOULDERS TOP TAKING SHAPE?

The Australian Dollar is at a key inflection point against its US counterpart against this backdrop. Prices recoiled from resistance in the 0.7820-49 zone to land within a hair of familiar range support at 0.7677, a barrier reinforced by a rising trend line set from the April swing bottom.

A daily close below this barrier would set the stage for a challenge of 0.7564, the neckline of a would be Head and Shoulders topping pattern developing since the start of the year. Breaching this boundary and thereby completing the formation would imply a measured down move below the 0.72 figure to follow.

Alternatively, establishing a foothold above 0.7849 – again, on a daily closing basis – would probably neutralize near- term selling pressure and open the door for gains. The next key barrier thereafter is marked by the 2021 swing high sitting squarely at the 0.80 figure.

AUD/USD Daily Chart

CRUDE OIL, US CPI, FED, COLONIAL PIPELINE, PPI

Crude oil prices trim gains as US CPI data inspires risk aversion

Colonial Pipeline restart may hurt WTI, eyes on US PPI data next

Oil trading within an Ascending Triangle, key resistance March high

Growth-linked crude oil prices managed to end Wednesday’s session higher despite broad-based risk aversion in financial markets. The fastest pace of headline consumer price growth since 2008 pushed up Treasury yields and sent the Dow Jones, Nasdaq 100 and S&P 500 tumbling. The pain was felt across the world, with most Asia-Pacific indices trading in the red to start off Thursday’s session.

Having said that, WTI gave up most of its gains as it tracked Wall Street equities lower into the close. US government data reported that local crude oil inventories shrank to the lowest since late February last week. This is continuing to support the notion that the economy is steadily recovering from the coronavirus as stockpiles continue to evaporate from last year’s glut.

Prices were also elevated by the temporary shutdown at the Colonial Pipeline on the East Coast. Energy Secretary Jennifer Granholm announced late in the day that the pipeline will restart operations. The anticipated increase in supply may have also weighed on oil prices. This is as surging coronavirus cases in India, the world’s third-largest consumer of oil, is clouding the outlook for energy prices.

With that in mind, all eyes are on US wholesale inflation data over the remaining 24 hours. PPI final demand is expected to clock in at 0.3% m/m in April. Higher-than-anticipated readings could further boost inflation expectations and drive up Treasury yields. But, ongoing dovish commentary from the Federal Reserve could calm the bond market and thus crude oil prices.

CRUDE OIL TECHNICAL ANALYSIS

WTI crude oil prices appear to be trading within an Ascending Triangle on the daily chart below. In the event of a turn lower ahead, keep an eye on the floor of the chart pattern which could hold. Further gains would place the focus on the ceiling, estimated between 66.37 and 67.94. A breakout higher could open the door to resuming the dominant uptrend.

CRUDE OIL DAILY CHART

CRYPTO OUTLOOK: ETHEREUM PRICE ACTION KEEPS OUTPERFORMING BITCOIN

Ethereum, Bitcoin, Ripple, and Dogecoin all declined during Wednesday’s trading session The ETH to BTC ratio highlights how Ethereum continues to outperform its crypto cousin US Dollar strength, higher Treasury yields remain headwinds for major cryptocurrencies

Cryptos came under pressure alongside stocks on Wednesday as an influx of volatility and risk aversion roiled markets. This looked largely driven by spiking bond yields and a stronger US Dollar. Ethereum (ETH/USD) is on pace to close the session -2.25% lower after hitting a fresh all-time high earlier in the day. Bitcoin (BTC/USD), Ripple (XRP/USD), and Dogecoin (DOGE/USD) turned lower as well with the major cryptocurrencies notching declines of -4.00%, -3.95%, and 5.38% respectively at the time of writing. While cryptos may have turned broadly lower on Wednesday, one trend remains prevalent: Ethereum outperforming Bitcoin

This is reflected by the ETH/BTC ratio skyrocketing over the last few weeks, which is likely explained by traders rotating their positions out of Bitcoin and into Ethereum. That said, Ethereum remains quite a ways away from dethroning Bitcoin as the largest cryptocurrency by market cap. Ethereum’s market cap of $475-billion is less than half of Bitcoin’s market cap of $1.02-trillion according to the latest data. Nevertheless, with the ETH/BTC ratio currently at 0.08, there appears to be more runway for Ethereum to continue outperforming Bitcoin as their relative value converges toward the 2018 swing high of 0.11 before the 2017 peak of 0.15 comes into focus.

ETH/BTC – ETHEREUM TO BITCOIN PRICE CHART: WEEKLY TIME FRAME (AUGUST 2015 TO MAY 2021)

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