TA Tuesday: Inflation looms large, as investors await key market figures this week

Looking ahead, this week’s main events are as follows:  

  • Wednesday, July 13th: US CPI (expected: 8.8% YoY, previous: 8.6%)  
  • Thursday, July 14th: US PPI (expected: 10.7% YoY, previous: 10.8% YoY)
  • Friday July 15th: Core Retail Sales (expected: 0.6% MoM, previous: 0.5% MoM)

These numbers will have a direct and immediate impact on both Digital Assets and TradFi as the FED will be deciding on the target rate on July 27 in order to bring inflation down to the longer-run goal of 2% and set price stability. The market is pricing a target rate of 225-250 bps with 93% probability, which means another 75bps. 

On the Macro side: 

As the USD keeps being one of the strongest assets in 2022, the June updates are already weighing on Commodities. WTI Crude Oil (drawdown: -19.7% YTD), Gold (drawdown: -16.19% YTD), and Copper (drawdown: -32.3% YTD). 

Markets are preparing for the non-stop rate hikes as inflation is likely not to retreat as quickly as central banks expected by year-end. The US dollar is consistently hitting new highs (DXY: 108.46, +13% YTD).  

If the US dollar ride does not break any time soon, we could soon see US Crude Oil below $90, Gold testing the lower $1,700 – $1,720 band, and Copper at $3. The price of copper is a good economic indicator: a strong demand for copper (resulting in higher prices) means that workers are building new structures and consumers are spending: it means the economy is/will be hot. Now that prices – and demand – are cooling down, the economy is slowing down and will continue to slow down. 

Similarly, the US Yield Term Structure (US 10y Yield minus US 2y Yield) is – once again – inverted. Should the end of the next quarter show a declining GDP, the US economic slowdown will “officially” turn into a recession. 

On the FX side: 

Last week, I called a trade on EURCHF. I am here to reconfirm it. As the double bottom failed to hold, we are now approaching 0.985, which is the current support. As this is my new entry point, the closing target is the previous support: 0.998 (new resistance). Also, as the USD is getting stronger and stronger, and the Euro Zone is “slowly” sliding into crisis, I am ready to see EURUSD below parity, unless ECB starts to make some serious and prompt decisions (i.e. tightening the balance sheet, raising rates, “clarifying” what the EU future holds, etc.). 

On the Crypto side: 

BTCUSD (-0.84% in 7 days), ETHUSD (-3.7% in 7 days) and SOLUSD (-3.84% in 7 days). 

The current crypto market cap is $865.91B (-10% in 7 days). 

Both for crypto and TradFi options, volatility and vol of vol has gone down. VVIX is hitting new lows as the market expects the volatility of volatility to reduce. This is bullish for the markets, as higher volatility has been synonymous with downside risk since the beginning of 2022. 

I will not claim that the contagion/bankruptcies/scandals are over, but market participants are now definitely – more – aware. The 25-Delta 3-month skews are now trading at 15% for BTC and at 13% for ETH, both in favour of puts and almost unchanged WoW. 

Both BTC and ETH ATM iVol term-structures are in contango and trading on average at 75% for BTC and 95% for ETH. The 50-day ATM iVol lost 15vols for BTC and 3vols for ETH in 7 days!! My take on this is that traders are getting out of expensive hedges/downside speculations, and are happy to take on more risk, at least for BTC… (I see the long-vol strategies with Condors ahead of the CPI numbers interesting here). 

BTC is now re-testing a triangle at $20.2k-$20.5k. Should BTC hold the $20k support, we should soon be back at a $25k (resistance). Otherwise, the price is likely range bounded again between $18.5k and $21k. 

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