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Unease ahead of US inflation

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By Craig Erlam

Another day of significant unease in financial markets as investors nervously await US inflation data and the start of earnings season.

The economic calendar goes up a couple of gears on Wednesday, with RBNZ and BoC rate decisions bookending the US inflation data. Fifty basis point rate hikes are now the norm and the debate has shifted to how super-sized they’ll be, with a stronger US CPI number potentially cementing another 75 from the Fed in a couple of weeks.

In anticipation of that, investors have retreated to the safety of the US dollar, steering clear of risky assets in favour of havens. The greenback has performed very well over the last week, but that’s been particularly evident against the euro as the pair hit parity Tuesday morning for the first time in 20 years.

A combination of factors have driven the move from aggressive Fed moves, increasing recession risks in Europe as the bloc faces a potential energy crisis this winter and higher ECB rates that could exacerbate the economic woes. Needless to say, we may be looking at a EURUSD rate that starts with ‘0.’ for some time to come.

Oil slides as OPEC forecast another tight year

Oil was falling heavily Tuesday, off more than 4% and pushing WTI back below $100 a barrel. Recession fears are strengthening the bearish case for crude and we’re seeing those materialise after previously reaching very high levels.

That said, the market remains extremely tight and Wednesday’s OPEC report highlighted that fact, with demand next year seen exceeding supply by a million barrels per day. That should limit the downside we see as a worsening growth outlook is priced in.

Of course, President Biden will be hoping to change that dynamic during his visit to Saudi Arabia this weekend.

Gold enjoys mild reprieve

Even gold is feeling some love, squeezing out small gains at one stage after being driven lower once more earlier in the session.

Intensifying economic fears are contributing to slightly lower interest rate expectations and in turn, lower yields. That may be offering some support to the yellow metal, but not enough.

The old adage of up the stairs and down the elevator in stock markets is very much looking the case for gold right now. With that, I’m struggling to get too excited by rallies and instead the focus may be on the $1,680-1,720 region.

More pain for bitcoin?

Even the most ardent of bitcoin HODLers must be questioning themselves as BTC flirts with a move below $20,000 once more.

I don’t think $20,000 is as critical a level as it was before given a couple of brief stints below, but it’s certainly noteworthy that it repeatedly looks to dip below.

A move below $17,500-18,500 support could accelerate the crypto’s sell-off, while a break of $19,500 may also signal further pain to come.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.