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Forex Today: US Inflation Overshoot Pushes Stocks, Cryptos to 1-Year Lows

By Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

Higher than expected US inflation data triggered further selling in risky assets, with stocks and cryptocurrencies looking vulnerable to further sharp falls in value.

  • Eagerly awaited US CPI (inflation) data released yesterday showed a fall in the headline rate from 8.5% to 8.3%, but the fall was smaller than had been expected, while core CPI data showed another increase, which was also an overshoot. The data gives a little credibility to the “inflation has peaked” position, but has worried markets and will also worry the Federal Reserve, who will see the data as indicating a persistence in inflation. Although the data ultimately brought only a small increase in the 2-Year US Treasury Yield so far, it likely helped trigger further strong selling in risky assets such as stocks and cryptocurrencies, both of which asset classes look very vulnerable today.
  • Stock markets are broadly lower, some significantly so. The S&P 500 index closed well below its psychologically important 4,000 level yesterday at a new 1-year low, and the price is not far from completing a 20% decline from its peak a few months ago, which would put the US stock market into a bear market by any measure. The NASDAQ 100 index is also firmly lower at a 1-year low. These are strong bearish trends and are likely to continue over the coming days.

  • Cryptocurrencies are in serious trouble, with Bitcoin breaking below a very key support level at $28,800, which threatens to trigger a further fall all the way down to $10k or even lower. Almost all coins are making significant double-digit losses on a more or less daily basis, while a key stablecoin, UST (Luna/Terra), has effectively collapsed, threatening the entire crypto ecosystem. Some analysts see this as a buying opportunity, but it will likely be foolish to not wait for evidence of a bottom first.
  • In the Forex market, there is clearly a flow into the Japanese Yen as a safe haven, while the British Pound and New Zealand and Australian Dollars are the weakest major currencies. There is a small retracement against these trends underway, but the broader trend is likely to resume. The US Dollar remains relatively strong.
  • Today will bring releases of US PPI data, which may give further insight into US inflation, and Preliminary UK GDP data.
  • Daily new coronavirus cases globally fell last week for the seventh consecutive week.
  • It is estimated that 65.5% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 6.6% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.
  • Total confirmed new coronavirus cases worldwide stand at over 519.1 million with an average case fatality rate of 1.21%.
  • The rate of new coronavirus infections appears to now be significantly increasing only in Costa Rica, Dominica, South Africa, and Taiwan.
  • The Chinese state is maintaining its “zero covid” strategy, after a study by Shanghai university suggests that relaxing lockdown restrictions would likely lead to 1.6 million deaths in China and an overwhelming of intensive care units, as vaccine-induced resistance to the virus is likely to have remained low.
Adam Lemon
About Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

 

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