Upcoming US Retail Sales Report Unlikely to Deter the Fed from Aggressive Tightening

Key Points

  • US Retail Sales data for August is set for release at 1230GMT on Thursday.
  • Headline sales are seen rising 0.2% MoM and 0.1% when adjusted for August’s MoM headline CPI reading.
  • While a weak report is unlikely to deter the Fed from aggressive tightening, a strong report could bolster their confidence.

US Markets Gearing Up For August Retail Sales Figures

US market participants reorientate their focus away from inflation and onto the health of the US consumer on Thursday, with the US Census Bureau set to release US Retail Sales figures for August at 1230GMT.

Nominal headline retail sales are seen rising 0.2% MoM, which would mark an inflation-adjusted gain of 0.1% on the month (when adjusted for August’s 0.1% gain in the headline Consumer Price Index, as data on Tuesday showed). That would come after retail sales enjoyed a 0.8% inflation-adjusted gain in July. Nominal core retail sales are seen rising at a MoM pace of 0.1% in August, a deceleration from July’s 0.4% pace of growth.

A rapid drop in gas prices in recent months is for now cushioning the US consumer from inflationary pressures that are hitting from other angles (such as still elevated rent and food price growth). Other sources of US economic strength, such as the still historically strong jobs market, are also helping.

But many analysts don’t expect this resilience to continue. “We maintain a weak outlook for real goods demand over the next few quarters,” Credit Suisse argued in a note last week. The Swiss bank added that “sentiment is sour and financial conditions are tightening along the Fed’s explicit policy goal of slowing growth”. This “may put the US into a broader, unemployment-led slowdown, keeping risks to spending skewed to the downside,” they argue.

How the Retail Sales Report Could Impact Fed Tightening Expectations

The data will be viewed in the context of if/how it might impact expectations about the outlook for Fed monetary tightening. On Tuesday, US Consumer Price Index (CPI) figures for August showed a surprisingly large uptick in core inflationary pressures, rattling equity markets and forcing money market traders to price in an additional 25 bps in Fed rate hikes by the end of the year.

Fed funds futures currently imply the Fed funds rate hitting 4.0% by the years end, versus under 3.8% prior to the CPI, before rising to 4.35% by the end of Q1 2023. Prior to the CPI data, rates were seen peaking around 4.0% at the end of Q1 2023. PPI data on Wednesday also showed a pick-up in August core price pressures.

In light of this week’s inflation data, which has been interpreted as likely to strengthen the Fed’s resolve to continue with aggressive rate hikes, it seems unlikely that Thursday’s retail sales report could push back against the market’s hawkish Fed pricing. Afterall, the Fed has explicitly said that it is willing to look past some economic weakness if that means getting inflation back to target.

Even if Thursday’s Retail Sales data is super weak, traders shouldn’t expect that all of the sudden the Fed is suddenly going to come to the rescue when they are so focused on the apparently still worsening inflation outlook. On the other hand, another stronger than expected report could boost the Fed’s confidence that the economy, which also still boasts a historically robust labor market, can “handle” aggressive tightening.

Data Dump

A dump of other tier 2 US data reports are also released alongside the US Retail Sales report on Thursday. At 1230GMT, the weekly jobless claims report is out alongside the Import and Export Price Indices for August, and the New York and Philadelphia Fed Manufacturing surveys for September. These reports will give a timely update as to the health of the US industrial sector ahead of the release of more widely followed US Markit and ISM Manufacturing PMI reports for September in the coming weeks.

50 or 75 bps Rate Hike: Markets Split Over Size of Next Week’s BoE Move

Key Points

  • UK inflation surprised (slightly) to the downside on Wednesday, with headline CPI falling back under 10% YoY.
  • But economists still expect it to hit 11% in October as energy prices rise.
  • Market participants are split over whether the BoE will hike rates by 50 or 75 bps next week.

UK August inflation figures surprised to the downside on Wednesday. The YoY rise in the Consumer Price Index fell unexpectedly for the first time in a year to 9.9% from 10.1% in July, versus expectations for a modest rise to 10.2%. Core CPI came in as expected at 6.3%, up from 6.2% a month earlier. Meanwhile, Producer Price Index figures also surprised to the downside.

Whilst the (modest) fall in the headline YoY inflation rate will be seen as good news for the BoE, which has been raising interest rates aggressively in recent months to cool the economy as inflation surges, economists do not think UK inflation has yet peaked. In October, a new household energy tariff cap kicks in and is likely to push the headline YoY inflation rate above 11%.

Indecision Over Size of Next Week’s BoE Rate Hike

While UK money markets are currently pricing in an 80% chance that the BoE hikes interest rates by 75 bps next week and only a 20% chance of a 50 bps move, most of the economists who partook in a recent Reuters poll said they think a 50 bps rate hike is more likely. That could complicate GBP’s reaction function to next week’s rate announcement – traders may be unsure as to whether to sell GBP on a 50 bps rate hike or whether or not to buy it on a 75 bps move.

What’s clear is that, with Wednesday’s inflation figures showing the price pressures, while a tad lower than expected in August, remaining elevated at multi-decade highs, the BoE has plenty of work to do regarding further rate hikes if it wants to keep inflation expectation anchored and get back to its 2.0% target in the coming years.

Traders have been upping their bets as of late as to where UK interest rates will peak next year, with rates now seen reaching around 4.5%. Contributing to the recent upshift in BoE tightening bets has been the recent announcement of new fiscal support by the UK government.

The UK government looks set to borrow at least £100 billion to help households/businesses pay for their energy bills. While a government cap on energy costs incurred by the public means a lower expected peak in UK inflation in the months ahead, it also reduces downside risks to the UK economy, which may contribute to core UK inflationary pressures remaining elevated for longer, thus requiring a stronger tightening response from the BoE.

USD/JPY Seen Remaining Bid Despite BoJ Intervention Threat

Key Points

  • USD/JPY pulled back aggressively from earlier highs around 145 to around 143 on Wednesday amid the threat of BoJ intervention.
  • The BoJ, which acts on behalf of the Japanese MoF regarding intervention, reportedly conducted “rate checks”.
  • Analysts see intervention as unlikely, and any intervention-induced USD/JPY dip to be bought into anyway.

BoJ Conducts “Rate Check”

Headlines during Wednesday’s Asia Pacific session suggesting that the Bank of Japan is taking steps that could precede outright FX market intervention to prop up the value of the yen triggered a reversal lower in USD/JPY, with the pair now trading around 143.0 after earlier probing the 145.0 area.

The BoJ reportedly conducted a “rate check”, which means it asked Japanese FX dealers for direct prices ahead, a step it has taken in the past ahead of direct market interventions. When it comes to FX market intervention, the BoJ acts at the behest of the Japanese Ministry of Finance.

Japanese Finance Minister Shunichi Suzuki on Wednesday told market participants that any intervention would not be announced in advance, and would likely not be confirmed in its aftermath. Suzuki and other Japanese officials have been jawboning about the negatives associated with excessive yen weakness in the past few days as USD/JPY has pushed to fresh multi-decade highs.

Normally, a weaker yen is viewed as favorable by authorities given the associated boost to Japanese exports. But given the extent of the yen’s decline this year (around 30% versus the US dollar) and the surge in global energy prices, yen weakness is hurting Japanese businesses and consumers.

The yen has underperforming its major G10 peers this year as a result of the BoJ’s continued commitment to its ultra-dovish policy stance at a time when other major central banks like the Fed, BoE and ECB have been aggressively raising interest rates to curb rampant inflation. This has triggered a significant widening of G10 (ex-Japan)/Japanese rate differentials, battering the yen.

Intervention Viewed as Unlikely

Analysts noted on Wednesday that, given Japan is a signatory to the G7 and G20, and as such has signed policies about refraining from FX market intervention, direct intervention remains unlikely.

“My feeling is that the MOF won’t intervene at this stage and will leave it at verbal warnings,” said the chief economist at the Tokyo-based Norinchukin Research Institute, according to Reuters. “There’s still a week before the Fed’s rate-setting meeting… I don’t think markets believe the ministry will intervene at current dollar/yen levels,” the chief economist said.

Further verbal warnings could come directly from BoJ Governor Haruhiko Kuroda and his colleagues at next week’s BoJ meeting. The bank is not expected to signal any intentions to deviate from its ultra-dovish policy stance of rates at -0.1% and continued yield curve control.

USD/JPY to Remain a Buy on Dips, Even if BoJ Intervenes

“Were there BoJ FX intervention, Japanese authorities could easily sell around $5bn… That could trigger a brief dollar correction,” said ING analyst Chris Turner in a note on Wednesday. “However, the dollar is up here for good reasons and we would expect the macro hedge fund community to be happy to buy dips on any 2-3% correction in USD/JPY,” he added.

For now, Turner thinks the dollar will remain bid “as the market awaits a hawkish FOMC meeting next week”.

US Rail Strike Risks Exacerbating the Fed’s Inflation Headache

Key Points

  • US railroad transportation could be hobbled by strikes as soon as 17 September, possibly costing the economy $2B per day.
  • The strike threatens to create a new supply shock in US energy, food and other commodity markets.
  • Any supply-shock-induced inflation could further complicate things for the Fed, which is battling to cool still rampant US inflationary pressures.

Railroad Strikes Could Cost $2B Per Day, Hobble the US Food, Energy Industries

In the absence of a breakthrough in negotiations between two hold-out rail worker labor unions, railroad operators and US government officials, tens of thousands of rail workers are set to go on strike from Saturday 17 September, hobbling transportation across all major US railways.

According to the Association of American Railroads, which represents operators such as CSX, Union Pacific, BNSF, Norfolk Southern and Kansas City Southern, the strike could cost the US economy as much as $2 billion per day, should it go ahead, given its impact on the transportation of goods and people across the country at a time when inflation is already sky high and supply chains have only just been able to recover properly from pandemic-related disruptions.

Representatives from the energy and food industries have been sounding the alarm. “Coal would stop,” the CEO of Xcoal Energy & Resources LLC, the biggest US coal exporter, told Bloomberg, potentially complicating the US energy picture at a time when the country has been focused on increasing fossil fuel exports to Europe, which continues to suffer as a result of reduced energy flows from Russia.

Another CEO of a major US agricultural supply company told Bloomberg that the stoppage could disrupt the flow of fertilizer to farmers just as they plan to apply it to crops, before adding that a strike would be “brutal for farmers, the industry and the public”.

The fact that the White House got directly involved in negotiations earlier this week speaks to the severity of the situation. Railroad operators have been urging the US Congress to prevent the strikes with new legislation. That presents a dilemma for the Democrat Party, who currently holds a (slim) majority in both houses, as they have typically been pro-union, but will also want to avert any strike that may worsen nationwide economic conditions.

Strikes Could Complicate Things for the Fed

The strike has the potential to worsen the Fed’s inflation headache. Inflation as per the US Consumer Price Index (CPI), hit multi-decade highs earlier this year and the Fed has been lifting interest rates aggressively in order to try and cool things down.

Whilst headline price pressures in the US appear now to have peaked, CPI data for August released on Tuesday showed an unexpected heating up of core price pressures. This forced the market to bump expectations for where US interest rates will peak next year higher by around 25 bps to around 4.25%.

Recovery in pandemic-affected supply chains had been one factor, combined with substantially lower gas prices, behind why headline price pressures in the US have peaked in recent months. Nationwide rail strikes, were they to drag on for a significant time, could potentially introduce another supply shock to the US economy that could make the Fed’s job of bringing inflation back to 2.0% even more difficult.

The central bank is expected to raise interest rates by 75 bps at its next two meetings, which would take the benchmark interest rate target range to 3.75-4.0%.

Markets Boost Fed Tightening Bets Amid Hot Core US Inflation

Key Points

  • Headline US inflation unexpectedly rose 0.1% MoM in August, while the YoY rate ebbed to 8.3%.
  • Core inflation jumped to 0.6% MoM and 6.3% YoY, above expectations amid strength in rents, utilities and new car prices.
  • Markets have responded by adding an additional 25 bps in expected Fed rate hikes between now and mid-2023.

Core Inflation Comes in Hot

US Consumer Price Index figures for August surprised to the upside on Tuesday. The headline price index rose 0.1% MoM last month versus an expected 0.1% drop, after remaining unchanged in July. YoY, the headline price index fell to 8.3% from 8.5% a month earlier, less than the expected decline to 8.5%.

The real surprise came in the core inflation figures. The rate of core inflation jumped to 0.6% MoM in August against expectations that it would remain unchanged at 0.3%, while the YoY core inflation rate rose to 6.3% from 5.9% versus and expected rise to 6.1%.

The surge in core inflation was driven primarily by upside in rental costs, which were up 0.7% on the month, in utility costs, which surged 1.5% and in new car prices, which gained 0.8%. Food prices, meanwhile, were up 0.8% MoM. Strength in these components thus largely outweighed weakness in gasoline prices, which were down a little over 10% MoM in August.

“The slow-moving nature of primary rent and OER in the CPI data suggest housing will continue to provide a sizable boost to core inflation in the coming months,” analysts at Well Fargo note. “At the same time, price growth for other services like medical care, insurance, tuition and personal care continue to press ahead at a strong rate, underscoring the inertia inflation continues to carry,” they add.

Markets Up Fed Tightening Bets

In response to the much hotter than expected core US inflation figures for August, markets have responded by significantly upping their Fed tightening bets for the coming quarters. Where Fed funds futures markets had been priced for benchmark US interest rates to have ended the year slightly below 3.8% prior to Tuesday’s data, they are now priced for rates to end the year roughly 25 bps higher in the 4.0% area.

Meanwhile, where Fed funds futures markets had been positioned for the benchmark rates to peak somewhere around 4.0% next year, rates are now seen hitting around 4.25% by the end of Q1.

In terms of upcoming Fed meetings, according to the CME’s FedWatch tool, where US money market pricing had implied a 91% chance of a 75 bps rate hike and a slim 9.0% chance of a smaller 50 bps rate hike at next week’s FOMC meeting, a hike of at least 75 bps is now seen as certain, while the chances of an even larger 100 bps rate hike is priced at about 18%.

Most analysts are sticking by their calls for the Fed to press ahead with a 75 bps rate hike next week, regardless of the latest CPI figures. However, many are now calling for another 75 bps rate hike at the November meeting, with money markets also implying that this is now the base case scenario.

According to the CME’s Fed Watch Tool, there is now a 51.4% chance that the Fed will have raised interest rates to the 3.75-4.0% range (150 bps above current 2.25-2.5% levels) by the November meeting, versus just a 14.1% probability priced one day ago.

The latest inflation figures will be alarming to the Fed, who had already been flagging concern about the prospect that core price pressures remain elevated. Hence, the market reaction likely makes sense – if core inflation is stickier that previously thought, then the Fed will likely respond with additional tightening.

In terms of the market reaction; US equities have unsurprisingly been hammered as valuations take a hit amid the higher rate outlook, while crypto has also been hit. The US dollar has rallied, as have US yields across the curve, while gold has been hit.

UK Jobs Market Slowing Amid Worker Shortages, BoE to Press Ahead With Tightening

Key Points

  • UK jobs growth slowed significantly in the three months to July.
  • That was mostly due to worker shortages, with the jump in the economic inactivity rate.
  • Elevated wage growth as businesses compete for workers keeps pressure on the BoE to tighten.

UK Jobs Market Slows Amid Worker Shortages

Despite the UK unemployment rate falling to its lowest level since the 1970s in the three months to July, there are growing signs that the UK jobs market is slowing, though analysts think that persistent worker shortages and still elevated wage growth will maintain pressure on the BoE to hike interest rates rapidly in the coming quarters.

The UK jobless rate unexpectedly fell to 3.6% from 3.8% in the prior three months to June period, with analysts having expected it to remain unchanged. The drop was primarily driven by falling labor force participation, however, with job growth slowing significantly.

According to the UK Office for National Statistics (ONS) report, only 40,000 new jobs were created in the three months to July, well below the expected 128,000 gain. The so-called economic inactivity rate (i.e. working-age individuals not participating in the labor market) rose to 21.7% from 21.3% in the prior period.

A jump in the number of workers classified as long-term sick, which has risen by 150,000 in the last two months, has contributed to a shortage of workers that has driven the slowing pace of job gains/rising inactivity rate. ING notes that the number of workers sidelined from the jobs market due to sickness is up 400,000 versus pre-pandemic levels.

Analysts at the bank state that the latest jobs figures back up the takeaway from recent business surveys that suggest firms are still struggling to find workers. “Both the BoE’s Agent’s survey and the ONS’ bi-weekly business survey have shown no improvement in the number of firms saying they are struggling to source workers” as of late, they say.

While UK job vacancies did drop by 34,000 in the three months to August, according to the latest ONS figures, it remains close to record highs at 1.266 million, indicating demand for workers is not the limiting factor in the slowing UK jobs market.

BoE to Press Ahead With Further Tightening

Though the shortage of workers signifies that the UK economy is operating below its potential, it maintains the pressure on Bank of England to continue with aggressive rate hikes. Competition for scarce workers meant that Average Earnings excluding bonuses rose more than expected in July to 5.2% from 4.7% a month earlier, well above the BoE’s 2.0% inflation target and potentially adding to fears that the UK economy has entered a so-called “wage-price” spiral.

“Persistent worker supply constraints coupled with so far only modest signs of reduced hiring demand will provide further ammunition for Bank of England hawks to push ahead with further tightening”, said analysts at ING. According to a recently released Reuters poll, the BoE is expected to implement another 50 bps rate hike next week, taking its benchmark rate to 2.25%.

Some analysts are warning it may have to go as high as 4.0% in 2023 in light of UK PM Liz Truss’ recently announced fiscal stimulus package designed to protect consumers from a massive energy price hike this coming winter, as well as shield businesses. While the plan has contributed to a fall in how much headline inflation is expected to rise in the coming quarters, some think it will boost core inflation in the UK.

US CPI Data in the Spotlight: What You Need to Know

Key Points

  • Headline US CPI is seen falling back from August’s levels on both a MoM and YoY basis.
  • However, Core CPI is seen unchanged MoM and rising YoY.
  • Unless there is a massive deviation from expectations, the Fed is expected to largely look through Tuesday’s report.

Headline Inflation Expected to Ease, Core Seen Unchanged

Tuesday’s US Consumer Price Index (CPI) report, set for release at 1230GMT, is expected to show the pace of headline inflation slipping to -0.1% MoM and 8.1% YoY in August, following July’s 0.0% MoM and 8.5% YoY figures. A further sharp decline in US gasoline prices last month is expected to be the main driver behind the drop in the headline US inflation rate.

Optimism about how Tuesday’s data is likely to strengthen the view that US inflation has now peaked was attributed as being a partial driver behind Monday’s sharp upside in US equity markets, analysts said at the time, as well as behind some of the US dollar’s recent losses.

However, the core metrics of the upcoming CPI report are not expected to show any easing of price pressures, which may contribute to worries that, while the headline YoY rate of inflation may continue to swiftly fall back from its recent highs above 9.0%, getting it back below, say, 4.0% will be more challenging.

The rate of Core CPI is seen rising slightly to 6.1% YoY from 5.9% in July, while the MoM rate of core price gains is seen remaining unchanged at 0.3%.

Fed Likely to Look Through Tuesday’s CPI Report

Most analysts agree that Tuesday’s CPI report, unless there is a big deviation from expectations either to the upside or downside, shouldn’t have too much impact on the Fed’s near-term policymaking decisions.

Policymakers at the bank have made it abundantly clear in recent weeks that tackling inflation is their number one priority and that, to do that, interest rates will need to move into contractionary territory for some time (i.e. into the 3-4% area for at least until the end of 2023).

In light of recent US economic data which has shown that 1) the US labor market remains historically strong and 2) the economy continues to grow (as per recent ISM survey data), markets are near certain that the Fed will deliver a 75 bps rate hike at next week’s meeting.

Some analysts think a massive downside surprise in core inflation could bring the discussion of a 50 bps rate hike back onto the table. But Fed policymakers have in recent months been keen to play down the importance of any one economic data release in their decision-making, stating that they instead prefer to observe trends.

With a few FOMC policymakers having already openly endorsed a 75 bps move next week, the bar for a smaller than 75 bps rate hike is high.

How Markets Might React

The breakdown of the CPI report could still have significant ramifications for the market’s expectations for longer-term Fed policy. Various Fed policymakers have been expressing worries about the persistence of “stickier” forms of inflation, such as rising rental costs and service costs.

As far as financial markets are concerned, if the report comes in largely as expected, Fed tightening expectations are likely to remain largely intact as they are right now – the Fed is seen lifting rates to around 4.0% by next March before lowering them to around 3.65% by next December.

That, given that it may contribute to hopes about inflation and Fed hawkishness both having peaked, could come as a relief to risk assets, with stocks and crypto likely to perform the best in this scenario while the US dollar potentially comes under renewed pressure.

A big downside surprise could see Fed tightening bets pared back somewhat, which would likely result in an even more exaggerated version of the above moves.

A big upside surprise, particularly if it in the core measures of inflation which Fed policymakers are likely watching more closely, could see the opposite happen – an uptick in Fed tightening bets and weakness in the likes of stocks and crypto combined with USD strength.

Traders Up ECB Tightening Bets as Sources Warn Rates Could Go “Restrictive”

Key Points

  • Traders upped their ECB tightening bets on Monday after sources said policymakers see an increased risk of rates going restrictive.
  • Implied Euribor future yields suggest the ECB’s benchmark rate moving above 2.05% by December and above 2.5% next June.
  • Bundesbank’s Nagel warned that further “clear” steps would be needed if inflation lingers.

Traders on Monday upped their bets that the ECB will raise interest rates more aggressively between now and the end of Q1 2023, in response to hawkish commentary from the influential head of German’s Bundesbank Joachim Nagel over the weekend and commentary in the financial press from ECB sources.

According to Eurozone Euribor futures markets, the ECB is seen lifting interest rates to just above 2.05% by the year’s end. That compares to expectations that rates would rise to around 1.85% by the end of the year as recently as the start of the month.

Further Clear Steps Needed if Inflation Lingers

In wake of the ECB’s record large 75 bps rate hike last week that saw the bank lift its benchmark interest rate to 0.75% last Thursday, Nagel was quoted by Bloomberg as saying on German radio that further “clear” steps would be needed on interest rates if inflation continues to linger. YoY headline inflation may surpass 10% by December, Nagel warned, though he also said he expects it to ease next year.

Meanwhile, unnamed ECB sources speaking to Reuters over the weekend said that policymakers at the bank see an increasing risk that they will be forced into lifting interest rates above 2.0% and into so-called “restrictive territory” amid their ongoing efforts to contain record-high Eurozone inflation.

The sources warned that the ECB would likely signal an intention to take rates into restrictive territory if the ECB’s next economic forecasts, out this December, project headline CPI that is still above the bank’s 2.0% target in 2025.

Money Markets Increasingly Betting on Front-loaded ECB Tightening Cycle

Eurozone money markets are already wagering that the ECB will take interest rates into moderately restrictive territory in 2023, reflective of expectations that, given developments in Eurozone energy markets this year, inflation looks set to linger for some time yet.

Euribor futures imply that, by next March, the ECB will have taken interest rates to slightly above 2.4%. That’s up from expectations for rates to have hit around 2.25% by March as recently as the start of the month.

The Euribor futures chain implies rates then topping out at just above 2.5% next June, before sliding slightly back to around 2.4% by next December. These expectations are broadly unchanged since the start of the month, implying that money markets while leaving ECB terminal interest rates bets unchanged, have increasingly shifted their expectations towards a more front-loaded ECB rate hiking cycle.

Euro Rallies, But Sustained Turnaround Unlikely

In wake of last Thursday’s 75 bps rate hike (ECB front-loading in action), such moves in money market expectations aren’t too surprising. The euro on Monday hit its highest against the US dollar in nearly one month when if came close to testing 1.0200 and was last trading with gains of about 0.9% on the day in the 1.0130 area.

Positive news regarding recent Ukrainian military success, with Russian forces having lost significant ground in recent days in the northeastern Kharkiv region, is also contributing to euro upside on Monday. But analysts are reluctant to bet on a sustained turnaround in the euro’s fortunes, with the currency still 11% down on the year versus the buck.

While the ECB is getting more hawkish, it looks set to be tightening into an energy crisis-induced recession. Meanwhile, while recent military developments in Ukraine might mean the conflict is closer to ending than previously thought, that doesn’t necessarily mean an end to Europe’s Russia/energy woes anytime soon.

Euro, Stoxx 600 Gain as Ukrainian Military Success Boosts European Market Optimism

Key Points

  • A surprise offensive in Ukraine’s northeastern Kharkiv region has seen Ukrainian forces retake substantial territory from occupying Russian forces.
  • European markets have responded positively to the idea the conflict could soon end, with the euro and equities gaining.
  • But analysts warn that Ukraine’s recent success doesn’t necessarily translate into an improved European economic outlook.

Ukraine Retakes Significant Territory in Surprise Offensive

In a surprise counteroffensive that kicked into overdrive over the weekend, Ukraine’s military has made sizeable territorial gains in the country’s northeastern Kharkiv region. In the last few weeks, Ukraine’s military had successfully tricked occupying Russian forces into believing that its main counter-offensive was to be launched in the country’s southern Kherson oblast, thus catching them off guard in Kharkiv.

In the last five days, Ukrainian forces have recaptured around 3,000km squared in territory, more than Russia was able to capture in the last four months, a development that some military analysts are referring to as a potential turning point in the war. Others have cautioned that while Ukraine’s latest gains are a big blog to Russian forces, it is premature to expect a broader Russian defeat in the war.

European markets have responded positively to the idea that an end to the conflict might now be a little closer. The euro was last trading with gains of close to 1.0% on the day versus the buck, with EUR/USD last around 1.0130 having at one point neared 1.0200, its highest level this month.

The euro has also been getting a helping hand from hawkish ECB commentary over the weekend.

The pan-European Stoxx 600 index of Europe’s largest publicly traded companies was last about 1.4% higher and also at its highest levels this month.

Europe Still Facing a Tough Winter

According to Societe Generale Macro Strategist Kit Juckes, the market’s “euro short position has been growing steadily” and “is sufficiently skewed that a single piece of unexpected news can trigger meaningful short covering”.

However, Jukes warns euro traders not to get ahead of themselves. “There are many steps between news of Ukrainian success in one part of the conflict with Russia and signs that Europe’s energy costs can come down enough to improve the economic outlook,” he said.

Indeed, Europe’s energy crisis that has seen gas and electricity prices surge well beyond historically normal levels due to reduced Russian gas exports shows no signs of easing in the near future.

European governments last week announced a barrage of support packages for consumers and utility companies in an effort to ease the economic impact of the crisis.

But most economists still expect the Eurozone economy to slide into recession this year, as high energy costs eat into consumer living standards and as industry faces possible closures amid potential energy rationing.

Analysts at Deutsche Bank warn that “Ukraine’s surprise success… increases the chances of a more aggressive response from Russia”. That could come in the form of escalatory military actions, or in the form of an escalated response to the West (namely Europe) over its continued military support for Ukraine.

Such a move, especially if it serves to worsen the already acute energy crisis faced in Europe, could quickly see recent gains in European markets unwound.

Top 3 Trending Coins: XRP Bears Eye Annual Lows Under $0.30 Ahead of Busy Week

Key Points

  • XRP is eyeing annual lows under $0.30 ahead of a busy week of US macro events/possible SEC vs Ripple developments.
  • UNI is the worst performing top 20 coin on Monday, amid a broadly downbeat tone to crypto trade.
  • CEL is the worst performing top 100 coin, as the recent short-squeeze-induced rally continues to unwind.

XRP Eyes Annual Lows as Investors Await Hinman Email Ruling/Busy US Calendar

After failing an attempted resurgence back above the $0.35 level over the weekend, XRP, the token that powers Ripple’s global payments system, has slipped back into the $0.33s per token. Bears are eyeing a test of support in the $0.3250 area, a break below which could open the door to a run lower towards June’s annual lows just under $0.30.

 

According to FX Empire’s head of crypto analysis Bob Mason, investors are this week facing “uncertainty over the Hinman Court ruling that could materially alter the direction of the SEC v Ripple case”. The court presiding over the US Security and Exchange Commission’s (SEC) lawsuit against Ripple recently denied attempts by the SEC to shield a set of emails from its former Chair William Hinman which are seen as likely to turn the tide of the case in favor of Ripple.

The SEC has filed an objection against this ruling, and a court decision on the objection is expected soon. The SEC is accusing Ripple of issuing XRP as an unregistered security.

“The crypto market (also) has to navigate the US economic calendar” this week, adds FX Empire’s Mason. According to Mason, this week’s key stats include Service Sector PMI, Core Durable Goods Orders, Q2 GDP, Jobless Claims, Inflation, and Personal Spending figures, while the Fed will also impact markets via speeches from the Jackson Hole Symposium on Thursday and Friday.

XRP/USD
XRP/USD Chart. Source: FX Empire

Uniswap Token (UNI) Bears Pushing for Further Downside

UNI, the utility and governance token of the decentralized exchange Uniswap, has fallen to fresh one-month lows around the $6.70 area on Monday and, according to CoinMarketCap, was the worst performing cryptocurrency in the top 20 by market cap over the last 24 hours. Over this time period, UNI has dropped nearly 6.0%.

The UNI bears have been in control since the cryptocurrency fell below an uptrend that had been in play since mid-June, as well as key support in the $8.0 area. The cryptocurrency is now at risk of further downside towards the $6.0 level.

UNI/USD
UNI/USD Chart. Source: FX Empire

Celius Network Token (CEL) Bears Also in Control

CEL, the utility token of now bankrupt cryptocurrency lender Celsius Network, has slid back to test its 200-Day Moving Average just under $2.0 per token as of Monday, weighed amid an ongoing downturn in broader cryptocurrency markets, as well as a continued unwind of the recent short-squeeze that sent CEL as high as the $4.50s earlier in the month.

CEL bears continue to target a test of key support in the $1.50 area, and then of the long-term downtrend from the June 2021 record highs near $8.0, which the cryptocurrency surged above early in the month.

CEL/USD
CEL/USD Chart. Source: FX Empire

Cardano Price Prediction: ADA Bears Remain in Control, With $0.40 the Target

Key Points

  • Cardano is back under pressure amid a downbeat tone in crypto markets on Monday, having failed to recover this weekend.
  • ADA bears continue to eye a test of annual lows in the $0.40 area.
  • Chatter about a drop to sub-$0.20 levels has once again picked up.

ADA Bears Continue to Target Annual Lows in $0.40 Area

ADA, the native token that powers the Cardano blockchain, is back under pressure on Monday after attempting to stage a comeback over the weekend. The cryptocurrency is back to trading in the mid-$0.44s per token, down over 3.5% on Monday and now down about 6% versus Sunday’s highs in the $0.47s.

Price action suggests that the bears remain in control after last week’s big drop. ADA closed the week nearly 19% lower on Sunday, its worst performance since May. The bears gained control after ADA dropped below a key support trendline that had been in play since mid-July and then when broader cryptocurrency markets took a tumble on Friday.

Sentiment in broader cryptocurrency markets has starter the week on a bad footing amid risk-off flows in the global equity space, with traders citing further concerns about 1) central bank tightening, 2) the worsening energy crisis in Europe amid the latest Russian gas halt and 3) concerns about Chinese growth, after the PBoC just lowered rates again.

These concerns, which are weighing on Cardano as well, seem unlikely to alleviate in the coming days, meaning cryptocurrency markets may well remain under pressure. Cardano bears will continue to eye a test of annual lows in the $0.40 area.

ADA/USD
ADA/USD bears eye $0.40. Source: FX Empire

A break below that could be catastrophic for ADA as it could signal a drop all the way to test the next major areas of support under $0.20 per token.

ADA/USD
Could ADA/USD be at risk of a collapse under $0.20? Source: FX Empire

Hoskinson Apologizes to Cardano SPOs as Ecosystem Prepares for Vasil Hard Fork

Cardano founder Charles Hoskinson apologized in a lengthy tweet last week for the way he responded to claims last week that there was a bug in Vasil hard fork version 1.35.2 that had “catastrophically broken” Cardano’s testnet. At the time, he called videos making such claims “bizarre and alarming”.

In his latest apology, Hoskinson said that “the backbone of Cardano as a useful protocol is the SPO (stake pool operator) community”. He had previously instructed SPOs with a somewhat impatient tone to upgrade to Vasil hard fork version 1.35.3, saying it had been heavily tested and would likely be the final version used when the hard fork goes ahead.

It had been devs within the SPO community that initially pointed out the floor in Vasil hardfork 1.35.2. One of those devs, Adam Dean recently implied that things are now going “better than ever”.

5 Things to Know in Crypto Today: BTC Hovers Above $21K Amid Risk-off Macro Tone

Key Points

  • Cryptocurrencies are trading with a negative bias on Monday amid a risk-off tone to global macro trade.
  • Bitcoin was last trading in the low $21,000s, but still within recent ranges as altcoins suffer.
  • It’s a busy week of macro events, with Fed Chair Powell’s Friday speech the highlight.

Crypto Weighed Amid Downbeat Tone to Macro Trade

A risk-off tone to global macro trading conditions amid continued concerns about 1) hawkishness from central bankers from the Fed and ECB and 2) a worsening energy crisis in Europe that risks further pushing up inflation their and tilting the continent into recession is weighing on cryptocurrency markets a tad on Monday. Bitcoin was last trading lower by about 1.0% on the day, though at current levels around $21,250, is still well within its weekend ranges, as prices consolidated after last Friday’s big drop from above $23,000.

Major altcoins are performing poorly, with Ethereum down over 3.5% in the last 24 hours according to CoinMarketCap and now under $1,600. Over the same time period, the likes of BNB, XRP, ADA, SOL and DOGE are all down between 2-4%. Monday is going to be a very quiet session in the US, implying not much volatility in cryptocurrency markets. US PMI survey data for August on Tuesday, the second reading of US Q2 GDP growth on Thursday and then July Core PCE inflation and a speech from Fed Chair Jerome Powell on Friday are the main events.

Crypto Markets Brace for Upcoming Fed Jackson Hole Event

The US Federal Reserve holds its annual symposium in Jackson Hole, Wyoming on Friday, an event that will be the dominant driver of macro sentiment this week. Fed Chair Jerome Powell will be delivering a major address on Friday. Powell and former Fed chairs have used the platform to signal major policy changes in the past. No major shift in the Fed’s policy stance is expected to be announced this Friday.

Rather, analysts expect Powell to echo the hawkish tone of other Fed policymakers who have been speaking in the last few weeks. While policymakers have expressed different preferences regarding the timing/extent of further interest rate hikes, they unanimously agree that 1) more hikes are needed and 2) the Fed must not get complacent in its fight against inflation, which remains far from won. Concerns about Fed tightening may well keep crypto bulls at bay.

Liquidity Tightening in Cryptocurrency Markets Eases

The recent tightening of liquidity conditions in cryptocurrency markets eased last week, said Morgan Stanley in a research report released last Friday. The metric that the bank uses as a proxy of liquidity conditions is the market cap of stablecoins/digital assets whose value is linked to the value of real-world assets (such as gold-backed coins).

According to Morgan Stanley, last week was the first week since April where the market cap of these assets did not decline, a possible sign that “extreme institutional deleveraging” might now have paused. However, there also appears to be little demand for leveraged positions to be rebuilt, the bank said, citing the continued drive by global central banks to tighten monetary policy as a hurdle.

FTX Revenue Surged 1,000% in the 2020/2021 Tax Year, CNBC Reports

Global cryptocurrency exchange FTX saw its revenue surge by 1,000% in the 2020-2021 tax year, reported CNBC this weekend citing audited financial documents, with revenues exploding from around $90 million to $1.2 billion. Reportedly, FTX raked in $270 million in revenues in Q1 2022, but many analysts suspect that the worsening of the crypto winter in Q2 implies that revenues last quarter may have declined.

Cryptocurrency Market Cap Could Hit $200T in the Next 10 Years, Says Raoul Pal

Widely followed macro commentator and former Goldman Sachs executive Raoul Pal outlined in a recent interview that he thinks the market cap of cryptocurrencies could surge by as much as 200x in the next 10 years to around $200 trillion.

“If I just extrapolate the network adoption effects, the number of users, and where the number of users is going and assume it gets to somewhere between four and five billion in the next 10 years or so – which would be central bank digital currencies enabling it, all ticketing, a whole bunch of stuff going that way – the market cap of the space goes from $1 trillion to $200 trillion,” he explained.

He said that even if he was wrong by 90%, that could still mean a cryptocurrency market cap of around $20 trillion, which he said “is still the best bet in the world”.

Top 3 Trending Coins: ETH Probes $1.6K Support Area, XRP Bears Eye Retest of Annual Lows

Key Points

  • Ethereum is the worst performing top 20 coin of the past 24 hours, according to CoinMarketCap.
  • Huobi Token failed to get a lift on the news that Huobi’s HUSD stablecoin had recovered its peg.
  • XRP was last consolidating around $0.34, having also come under heavy selling pressure recently.

Ethereum (ETH) Probes Key $1,600 Area

ETH, the token that power’s the Ethereum blockchain, is the worst performing cryptocurrency in the top 20 by market capitalization on Saturday, having dropped over 4.0% in the last 24 hours according to CoinMarketCap. Ethereum dumped nearly 13% on Friday, its worst one-day loss since 13 June. The cryptocurrency is now probing a significant area of resistance-turned-support around $1,600, and is eyeing a retest of its 50-Day Moving Average around $1,530.

The cryptocurrency is for now holding above earlier monthly lows, but has unwound of a substantial of its recent “merge” optimism upside and is now around 20% below last week’s highs above $2,000, having seemingly snapped out of its near-term uptrend. The near-term technical picture for Ethereum isn’t very clear. To the upside, bulls will target a retest of resistance just above $2,000, while to the downside, bears will target support in the $1,300 area.

ETH/USD
ETH/USD Chart. Source: FX Empire

Huobi Token (HT) Bears Eye Test of Record Lows

HT, the utility token for Huobi Global’s cryptocurrency exchange, has stabilized on Saturday in the $4.40s per token, having dumped around 25% lower from last week’s highs in the $5.80s. HT has been battered in tandem with broader cryptocurrency markets in the last few days and bears are eyeing a breakout below annual lows in the $4.30 area.

News that Huobi’s stablecoin HUSD has managed to recover its 1:1 peg to the US dollar hasn’t given HT any meaningful boost.

If the cryptocurrency does break out to fresh annual lows, a test of late 2020 lows under $4.0 is possible.

HT/USD
HT/USD Chart. Source: FX Empire

XRP Stabilizes in $0.34s as Bears Eye Test of Annual Lows Under $0.30

XRP, the token that powers Ripple’s blockchain global payments network, is stabilizing in the $0.34 area in tandem with consolidation in broader cryptocurrency markets on Saturday. XRP came under heavy selling pressure amid a broader cryptocurrency sell-off on Friday, dumping from around $0.37, with technical selling exacerbating things after the cryptocurrency broke to the south of an uptrend from the mid-July lows around $0.30. Traders will now target a retest of annual lows just below $0.30.

XRP/USD
XRP/USD Chart. Source: FX Empire

According to FX Empire’s head of cryptocurrency analysis Bob Mason, there have been no fireworks to deliver XRP volatility in the ongoing Ripple vs SEC lawsuit.

Cardano Price Prediction: ADA Price to Test Annual Lows Around $0.40 Next?

Key Points

  • Cardano is stabilized in the $0.45 per token area on Saturday after dumping over 12% on Friday.
  • The cryptocurrency is currently on course to post a 20% weekly drop amid a broader crypto downturn.
  • Technical selling has also been attributed as hurting ADA this week after a key technical breakout.

Cardano to Test Annual Lows Around $0.40 next?

ADA, the native token of the Cardano blockchain, is stabilizing in the $0.45 per token area on Saturday in tandem with a broader consolidation across cryptocurrency markets following Friday’s sharp drop. ADA dumped over 12% on Friday, its worst one-day performance since mid-May and is currently on course to have shed 20% of its value this week, which would mark its worst one-week drop since January.

A downturn in broader cryptocurrency market sentiment, as well as in global risk assets like US equities, amid jitters about the hawkish tone of Fed policymakers this week has been attributed as behind much of Cardano’s latest recent drop. While officials differed in their opinion as to how fast and high interest rates should be lifted, they were unanimous in their agreement that the battle against inflation remains far from won and remains their utmost priority. That triggered some concerns that markets might be underestimating the Fed’s resolve to lift interest rates and hold them at elevated levels in 2023.

But technical selling has also been at play, with Cardano earlier this week breaking below an uptrend that had been supporting the price action since mid-July, which seemed to trigger a cascade of sell pressure. Now that ADA has hit late-July support in the $0.45 area, bears are eyeing a test of annual lows in the $0.40 area.

ADA/USD
ADA/USD eyes further downside towards annual lows. Source: FX Empire

Charles Hoskinson Refutes Claims of Vasil Upgrade Being Rushed

Cardano founder Charles Hoskinson has responded on Twitter to claims that the blockchain’s upcoming Vasil hard fork is being rushed, after a bug was identified in version 1.35.2 of the fork that had “catastrophically broken” Cardano’s testnet.

“It’s bizarre and alarmist seeing these videos floating around that things are being rushed with 1.35.3,” Hoskinson said, adding that “the code in question has been thoroughly tested for months by everyone including SPOs and that “the code that was an issue on the testnet has been removed”.

Hoskinson said that the Cardano community “could delay the launch of Vasil for a few months to retest code that’s already been tested a dozen times and is already running”. But he questioned whether this would be “worth it to all the DApp developers who have been waiting for this update for almost a year now?”.

Hoskinson signed off by saying that Cardano’s SPOs ultimately decide what happens, as it is decentralized, and that he is “tired of taking the blame on both sides”.

5 Things to Know in Crypto Today: BTC Recovers Slightly to Low-$21Ks After Friday’s Rout

Key Points

  • Cryptocurrency markets are stabilizing on Saturday after Friday’s beating.
  • Bitcoin was last trading near $21,250, up around 2.0% on Saturday after dropping 10% on Friday.
  • Concerns about Fed hawkishness have been cited as weighing on cryptocurrency prices this week.

Cryptocurrencies Stabilize After Friday Rout

After the worst sell-off in over two months on Friday, cryptocurrency markets are licking their wounds on Saturday. Bitcoin tumbled 10% on Friday to at one point fall below $21,000 but has since rebounded about 2.0% on Saturday back into the $21,250 area. Ethereum, meanwhile, has stabilized in the low-$1,600s after dumping nearly 13% on Friday. The likes of XRP, BNB, ADA, SOL and DOGE are all between 1-4% higher in the past 24 hours, according to CoinMarketCap, after all experiencing significant losses on Friday.

Traders cited concerns about Fed tightening in wake of hawkish commentary from Fed officials this week that boosted the US dollar and US bond yields as weighing on sentiment in cryptocurrency markets. While officials differed in their opinion as to how fast and high interest rates should be lifted, they were unanimous in their agreement that the battle against inflation remains far from won and remains their utmost priority. That triggered some concerns that markets might be underestimating the Fed’s resolve to lift interest rates and hold them at elevated levels in 2023.

Fed Chair Jerome Powell’s speech at next week’s Jackson Hole symposium event will be massive for cryptocurrency markets.

Tether’s New Auditor Confirms Drop in Commercial Paper Holdings

BDO Italia, stablecoin issuer Tether’s new auditor confirmed that, as of 30 June, Tether held $66.4 billion in reserve assets. The new audit showed that Tether’s holdings of commercial paper is down 58% to $8.5 billion as of the end of last quarter. Tether says these holdings will be down to $200 million by the end of this month and zero by the end of the year.

Tether CTO Paolo Ardoino said in a company blog post that “the utility of Tether continues to be supported by the transparency of its reserves and has been a leading source of stability allowing us to build a tool for the global economy”.

Huobi’s HUSB Stablecoin Recovers 1:1 US Dollar Peg

HUSD, Huobi Global stablecoin with a market cap of around $160 million, has recovered its 1:1 peg with the US dollar after falling to as low as $0.85 on Thursday. HUSD explained on Twitter that there had been a “short-term liquidity problem”, which has since been “resolved”.

US FDIC Orders Crypto Exchange FTX US, 4 Others to Cease ‘Misleading’ Claims

The US Federal Deposit Insurance Corporation (FDIC) sent five cease and desist letters on Friday, including to FTX’s US subsidiary FTX US, lambasting the exchange for making misleading claims suggesting that their products might be insured by the agency. In the event of bank failure, the FDIC will reimburse the customers of regulated banks their deposits worth up to $250,000 per account, a powerful incentive to prevent bank runs.

Cryptocurrencies and cryptocurrency products are not covered by FDIC insurance. FTX US President Brett Harrison had previously hinted in a tweet that deposits from employers would be stored in FDIC-insured bank accounts.

Protests Planned in Amsterdam Following Tornado Cash Creator’s Arrest

Activists will take to in Amsterdam this weekend to protest the recent arrest by Dutch law enforcement of Tornado Cash developer Alex Pertsev. Xenia Malik, Pertsev’s wife, stated in an email that “the accusations against Alex threaten to greatly harm the entire segment of open-source software… This is a major issue as it can affect every open-source developer and many other people in future”.

Malik hopes the protests this weekend will bring publicity to Pertsev’s arrest. Dutch officials, as well as the US Treasury, which recently blacklisted the Tornado Cash anonymous payments service, have received significant criticism from members of the cryptocurrency community over their recent moves to clampdown on Tornado Cash, as well as arrest its creator.

Critics say that the crackdown is an attempt to violate the right to privacy and that Pertsev is not responsible for any of the potential crimes committed by those using his anonymous payments platform. Arresting a software developer for the crimes of its future users sets a bad precedent, they argue.

S&P 500 Set to Snap Four-week Win Streak as Growth Stocks Slide

Key Points

  • Big tech/growth stocks led a sell-off in US equity markets on Friday, weighed by rising US bond yields.
  • The S&P 500 fell 1.2% and the Nasdaq 100 2.0%, with both on course to snap four-week win streaks.
  • Bed Bath & Beyond slid 40% after billionaire investor Ryan Cohen dumped shares for a $60 million profit.

Big Tech/Growth Stocks Lead Friday Sell-off

US equity markets were led lower on Friday by a decline in big tech/growth stocks, with the likes of Apple (-1.3%), Microsoft (-1.4%), Alphabet (-2.3%), Amazon (-2.9%), Tesla (-2.7%) and Meta Platforms (-3.7%) all coming under pressure amid a sharp rise in long-term US bond yields. A jump in German Producer Price Inflation in July to fresh record highs and recent hawkish commentary from Fed policymakers was cited as behind the latest rally in US yields, which has seen the US 10-year yield push to its highest levels in nearly a month at just under 3.0%, nearly 50 bps higher versus earlier monthly lows.

Whatever the cause of the jump in US bond yields, it means that the opportunity cost of holding growth stocks (whose valuations are disproportionately based on expectations for future earnings growth versus actual earnings) increased. Unsurprisingly, the heavily big tech/growth stock weighted Nasdaq 100 was the worst performer of the major US indices on Friday, losing 2.0%.

That took its weekly losses to just over 2.4%. The S&P 500, meanwhile, fell around 1.2% on Friday, taking its weekly losses to around 1.1%, though remains comfortably above 4,200. Friday’s drop means both indices are on course to snap a four-week winning streak. The Dow, meanwhile, dipped just over 0.7% on Friday and was still trading flat on the week.

In terms of the S&P 500 GICS sectors, Energy (+0.5%), Utilities (+0.2%) and Healthcare (+0.7%) gained, Consumer Staples was flat, while the other seven all fell, led by a 2.0% decline in Consumer Discretionary stocks.

DE Falls on Weak Earnings, GM Reinstates Dividends, BBBY Slumps 40% as Cohen Dumps Shares

In terms of individual stock news; Deere’s share price drop as much as 4.0% intra-day before recovering after the company posted lower than expected earnings per share for last quarter, citing ongoing supply chain difficulties. General Motors saw its share price rally nearly 2.0% after it announced plans to reinstate quarterly dividend payments that were halted back in 2020.

Bed Bath & Beyond saw its share price tank roughly 40% on Friday following the news that billionaire investor Ryan Cohen had dumped his shares in the struggling retailer and netted a $60 million profit. BBBY shares were last trading just under $12. At earlier weekly highs of $30, BBBY had been nearly 500% up on the month, with recent price action reminiscent of the meme stock mania of early 2021.

Finally, DoorDash fell 3.0% on Friday, weighed amid the news it had axed its grocery partnership with Walmart, whose shares were last down a little over 1.0% on the day.

DXY Primed For Best Week Since April 2020 Amid Fed Hawkishness, Global Growth Worries

Key Points

  • The DXY rallied above 108.00 on Friday and was on course for its strongest week since April 2020.
  • Hawkish Fed commentary and concerns about growth in China/stagflation in Europe have boosted the safe-haven buck this week.
  • GBP/USD fell back to within a whisker of annual lows under 1.1800.

DXY on Course For Strongest Week Since 2020 Pandemic Panic

The US Dollar Index (DXY), a trade-weighted basket of major USD forex pairs, was on course for its strongest week since the pandemic panic in April 2020. The DXY rallied another 0.6% on Friday to above 108.00, its highest level since 15 July and taking its weekly gains to 2.3%.

Analysts cited the hawkish tone of Fed policymakers this week as one major factor supporting the US dollar. Fed officials differed in their preferences as to how fast and high the central bank should lift rates in the coming quarters, but were unanimous in their commitment to prioritize bringing inflation down, which remains at levels that they deem to be far too high.

Analysts have also cited safe-haven demand amid growth fears in China and stagflation fears in Europe as the energy crisis there worsens as supporting the US dollar. As was the case in the 2020 pandemic panic, traders tend to flee to the US dollar in times of strife/concerns about the global economy, given its status as the global reserve currency.

Hawkish Shift in ECB Expectations Fails to Lift Euro

German Producer Price Inflation hit a new record high in July, data released on Friday showed, underscoring comments made by influential ECB policymaker Isabel Schnabel on Thursday, who at the time cautioned that the Eurozone inflation outlook has not improved since the central bank’s July meeting, comments which markets took as a hint that she will support another large rate hike next month.

Recent commentary from Schnabel and Friday’s German PPI surprise have seen markets up their ECB tightening bets, with Eurozone money markets now pricing in a 50 bps rate hike in September with certainty, and even implying a small chance of an even larger 75 bps hike. But this shift in expectations has failed to lift the euro, which depreciated a further 0.4% versus the buck on Friday.

That’s because the Eurozone economy looks to be on the brink of/already in stagflation, where inflation is rising as the economy shrinks. A more aggressive ECB tightening cycle adds to downside Eurozone economic risks, which is likely why markets are interpreting recent developments as a negative for the euro.

Sterling Set for Worst Week Since September 2020

GBP/USD depreciated a further 0.9% on Friday and came within a whisker of hitting fresh lows for the year after briefly dipping under 1.1800, as stagflation fears and data showing UK consumer sentiment hitting a record low in August negated stronger than expected UK Retail Sales in July. Sterling was on course for its biggest one-week drop aaginst the US dollar since September 2020, with GBP/USD last down over 2.5% on the week.

Aussie, Kiwi Worst Weekly Performs on Global Growth Woes

NZD/USD posted a sharp 1.2% drop on Friday, taking its weekly losses to over 4.0%, which would be its worst one-week performance since the Covid-19 pandemic spread globally in March 2020. Traders seem to have interpreted this week’s hawkish RBNZ meeting as adding to downside risks to the New Zealand economy at a time when the global growth outlook is suffering.

Indeed, Chinese data earlier this week showed a surprise slowdown in its economy in July and this has also weighed heavily on the Aussie. AUD/USD dropped a further 0.5% on Friday, taking its weekly losses to around 3.5%, which would mark its worst weekly performance in a year.

Elsewhere in the G10, a sharp rise in US bond yields across the curve pushed USD/JPY to fresh monthly highs in the 137.00 area, with the pair up 0.75% on the day and over 2.5% this week. USD/CAD, meanwhile, saw its losses cushioned on Friday cushioned by strength in oil prices and Canadian retail sales figures, with the pair rising another 0.3% and taking its weekly gains to about 1.7%. Nonetheless, at current levels just under 1.30, the pair is trading at its highest in a month.

WTI Set for Small Weekly Loss; Gold Falls Amid USD Strength/Higher Yields

Key Points

  • WTI rose slightly on Friday, supported by bullish OPEC commentary and US inventories earlier this week.
  • WTI was still on course for a slight weekly loss, with upside capped amid broader risk-off flows.
  • Gold was on track for its worst weekly performance in six on USD strength and higher US yields.

WTI Rises Slightly, But on Course For Weekly Decline

Front-month futures of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, was choppy on Friday amid risk-off flows in stocks and crypto, and amid upside in the US dollar, all factors that would normally weigh on oil prices. WTI was last changing hands just under $91 per barrel, about 50 cents higher on the day, but still on course to have lost about $1 this week.

Traders cited bullish commentary from OPEC’s Secretary General on Thursday (he was optimistic about demand into 2023), Wednesday’s bullish US inventory report and continued concerns about a fall in Russian crude oil output when the EU toughens sanctions on seaborne imports in the coming months as supportive of prices on Friday.

Copper Prices on Course for Modest Weekly Loss

Copper prices remains supported above $3.60 on Friday, but were still on course to lose a little over 0.5% this week. Commentary from Fed and ECB officials this week has reinforced the notion that both central banks remain committed to a series of further interest rate hikes to battle inflation that remains at multi-decade highs in both the US and Europe. This adds to downside risks to the global economy, keeping copper markets volatile this week.

Weak Chinese data on Monday further exacerbated concerns about the global economic outlook, but copper traders said that this has been negated by hopes that stimulus from Chinese fiscal and monetary authorities can boost copper demand in the medium-term. The PBoC unexpectedly lowered interest rates earlier this week. Meanwhile, falling Chinese copper stocks in warehouses is supporting the idea that, for now, demand in the world’s largest copper consumer remains robust.

Gold Set For Worst Weekly Performance in Six

Gold prices slid a further 0.5% to the $1,750 per troy ounce area on Friday, weighed amid more upside in the US dollar on a mixture of recent hawkishness from Fed policymakers who have spoken this week and safe-haven demand amid concerns about European stagflation and Chinese growth, as well as a sharp rise in yields across the US curve.

US dollar appreciation means that USD-denominated commodities like gold are more expensive for the holders of international currency, reducing demand, while a rise in US bond yields increases the so-called opportunity cost of holding the non-yielding precious metal. Gold was on track for a near 3.0% decline this week, which would mark its worst weekly performance in six.

Top 3 Trending Coins: Crypto Slide Sees BTC Drop to Low $21Ks, ETH to $1.7K and DOGE Under $0.07

Key Points

  • Bitcoin dropped over 8% on Friday amid a broad crypto sell-off, hawkish Fed jitters and technical selling.
  • BTC was last trading in the low $21,000s, with Ethereum also experiencing sharp downside and falling back to $1,700.
  • Dogecoin also fell and has now unwound all of its recent pump that saw it briefly surpass $0.09.

Bitcoin (BTC) Slides Amid Hawkish Fed Jitters/Technical Selling Pressure

Bitcoin, the world’s largest cryptocurrency by market capitalization, led a broad sell-off in cryptocurrency markets on Friday, as traders fretted about the hawkish tone of Fed policymaker rhetoric this week, and as the US dollar and US bond yields surged. A stronger dollar makes USD-denominated Bitcoin more expensive for the holders of international currency, thus reducing demand, while higher bond yields increase the so-called opportunity cost of holding non-yielding assets such as Bitcoin, also reducing demand.

BTC was last changing hands in the $21,300s, having slumped nearly 9% in the last 24 hours, and hit its lowest levels since late July. On the day, BTC is down around 8%, its worst one-day drop since 16 June. The cryptocurrency now trades around 15% lower versus last week’s highs in the low-$25,000s. Aside from jitters about Fed hawkishness that has triggered broad risk-off flows across asset classes on Friday, traders are also citing technical selling as weighing on Bitcoin.

Three days ago, the cryptocurrency broke out of a short-term uptrend that it had been in, after failing to break and hold convincingly above $25,000 area resistance on numerous occasions in recent weeks. With BTC now below its 21 and 50-Day Moving Averages at $23,430 and $22,220, the door is open for a test of late-July lows just under $21,000.

BTC/USD
BTC/USD slides towards support under $21,000. Source: FX Empire

Bitcoin’s latest pullback has exaccerbated fears that its rally from June’s annual lows under $18,000 has just been another bear market rally, as opposed to the start of a longer-term rally back towards record highs. Some social media users labelled Bitcoin’s most recent rally as another “headfake”.

Ethereum (ETH) Also Suffering, Falls Back to $1,700

Not to be outdone by its larger cousin, ETH, the token that powers the Ethereum network, has also dropped by about 8% on Friday and was last down around 9% in the last 24 hours. ETH/USD was last changing hands close to $1,700 and is now below its 21DMA at $1,770 and nearly 17% versus recent highs above the $2,000 level.

Ethereum technicians are now eyeing a test of support in the form of a resistance-turned-support area around $1,600, and the 100 and 50DMAs in the respective $1,565 and $1,520 areas.

ETH/USD
ETH/USD eyes test of $1,600 area support. Source: FX Empire

On a more positive note, Ethereum senior developer Tim Beiko confirmed on Twitter that the Ethereum merge will officially go live on 15 September.

Elsewhere, one of the largest exchanges in the US, the Chicago Mercantile Exchange, said on Thursday that it would soon be introducing trading in ETH future options.

Moreover, Yuga Labs, the creator of the Ethereum-based Bored Ape Yacht Club (BAYC) Non-fungible Token (NFT) collection announced its will only recognize BAYC NFTs on the Ethereum Proof-of-Stake chain after the merge, in the event that a Proof-of-Work Ethereum chain is created.

Dogecoin (DOGE) Unwinds All of Recent Pump

Dogecoin fell back below $0.07 per token on Friday and was last down around 14% in the last 24 hours, making it one of the worst performing cryptocurrencies in the top 20 by market capitalization. Dogecoin has now unwound all of its pump from last weekend/early this week that saw DOGE briefly rally as high as $0.09 per token.

The cryptocurrency is now back within the $0.06-0.08 range that dominated from late June to early August. Longer-term, the cryptocurrency remains in a downtrend and bears will be eyeing a test of annual lows around $0.05.

DOGE/USD
DOGE/USD bears eye eventual drop back to $0.05 annual lows. Source: FX Empire

Cardano Price Prediction: ADA Bears Target $0.45 Support After Latest Sell-off

Key Points

  • Cardano has slumped into the $0.46s and is now down around 13% in two days.
  • ADA’s latest drop has seen it snap its bullish trend and fall below key support levels.
  • A prominent Cardano developer issued warnings about problems with Cardano’s testnet as the Vasil upgrade approaches.

Cardano Snaps Bullish Trend Following Latest Drop, Eyes Test of $0.45 Support

After dropping nearly 5% on Thursday following a key technical break below an uptrend that had been in play since mid-July, ADA, the native token that powers the Cardano blockchain, has collapsed a further 8.5% on Friday, the cryptocurrency having been hit hard amid a broader sharp sell-off in cryptocurrency markets.

ADA was last changing hands just under $0.46, having now slid below support in the form of its 21-Day Moving Average at $0.5250, recent lows in the $0.50 area and its 50DMA just under $0.4950 in the last two sessions. The cryptocurrency is now trading at fresh monthly lows and eyeing a test of late-July lows just above $0.45.

The recent sell-off has dealt a severe blow to bulls prior hopes that ADA might soon test late May/early June highs in the $0.67-0.69 area, with the cryptocurrency’s near-term technical bias now no longer positive. Indeed, ADA looks much more likely to test recent lows in the $0.40 area than return to recent highs near $0.60 any time soon.

ADA/USD
ADA/USD sellers take control. Source: FX Empire

Cardano’s Testnet is “Catastrophically Broken”, Says Cardano Dev Ahead of Vasil Upgrade

Cardano’s Testnet is “catastrophically broken” due to a bug in Cardano Node version 1.35.2, prominent Cardano developer Adam Dean explained in a concerning Twitter thread on Thursday. The bug was “creating incompatible forks and causing a decrease to chain density”, Dean explained, adding that Cardano node operators had “rushed to upgrade”.

“To say that this level of “rushing” gives me uneasy feelings is an understatement,” Dean continued, before calling on Cardano founder Charles Hoskinson and Input Output Global (IOG) to develop and deploy the tooling necessary for “Disaster Recovery”. However, Dean later added that “strategies for regenerating testnet are being worked on :)”.

Cardano’s highly anticipated Vasil hard fork upgrade, which is set to deliver significant performance and scalability benefits to the network, has been delayed twice in the last two months amid technical problems. The upgrade is expected to go ahead later this month, but the latest update from Dean will do little to settle crypto investor nerves that there could be hiccups.