Trader thoughts - the Crypto bulls make themselves herd

EU indices were down smalls, with US equities faring in a similar vein of form and we see the VIX index at 17.9% and up 0.8 vols on the day. So there's some demand to hedge downside in equity portfolios but at these levels, the implied daily move on average in the S&P 500 (over the coming 30 days) is 1.1% and even that seems lofty when we contrast to the moves. We’ve actually seen playing out of late.

As we see the market seems happy to buy protection when the VIX falls into 16% - personally, I’d like to see this back above 20% and really into the 24-26% range. To get that we’re going to need to see some vol in the bond market, where ahead of the US CPI print (22:30 AEST) the market continues to be buyers of US Treasuries, with the 10yr -4bp and at 1.49% is pushing into absolute massive resistance (in price).

(Source: Tradingview)

While bonds seem overbought, a break of 1.48%/1.47% would be a powerful statement and take the benchmark bond into 1.29% and consider this has mostly been led by falling inflation expectations (breakevens), which are down 12 of the past 16 sessions.

This has led to a flatter yield curve, where the difference between 10yr and 2yr Treasury yields have fallen to 133bp from 160bp. This is weighing a touch on US banks, who borrow from short-term rates and lend at longer maturities.

A strong 10yr Treasury auction has been partly behind the move, but when the world has been expecting higher interest rates and the opposite is true, it's telling – US data has been improving, but it has largely come in softer than expected.

Still, it's all about CPI today (22:30 AEST) and this is a risk for traders. The consensus is 0.4% MoM on the headline and 0.5% MoM on the core measure. Yesterday’s China CPI printed +1.3% and PPI a monster 9%, and this has some questioning if China has exported inflation to the US and other geographies? It certainly hasn’t been taken too well by China proxies in the equity world such as the AUS200, given at the margin, it may lead to a more prudent approach from the Chinese authorities.

Some may disagree, but it feels like the balance of risk is tilted to the upside on US CPI (vs the consensus), which would favour a sell-off in Treasuries (higher yields) and subsequently a stronger USD. This could turn the move in US financials around and see better buyers, while tech may underperform. Gold may also struggle, but as per my rough matrix it really depends on how real yields shape up and how the USD fares – the March uptrend support kicks in at 1869 and that may be a good place to look for those looking to buy weakness.

(Source: Tradingview)

USDJPY is always a fairly clean play on the US CPI print, and while I'm not one to ever advocate trading data, I'd be interested in longs for 110.25, with a stop at 109.15. The set-up and feel of USDCAD looks interesting and was not really impacted by the Bank of Canada policy meeting. While my momo model is neutral on USDCAD, the downtrend from 1.2600 to 1.2100 has given way and the pair is consolidating and moving sideways – A break of 1.2142 and my model will look far more bullish and I’d see scope for this to push into 1.2250. One for the radar.

AUDUSD seems to find sellers easy to come by into 0.7760 and could be a tight stop for shorts and for those with a belief we get a strong CPI print. My volatility model has the downside on the day capped into 0.7690 (with a 68% level of confidence), but to get AUDUSD firmly below 77c, we’re going to need to see USDCNH firmly above 6.4029.

Watch EUR exposures ahead of the ECB meeting

EURUSD will get the attention today and while the set-up on the daily is choppy, I guess this is unsurprising given we get the ECB meeting at 21:45 AEST - my colleague Luke Suddards wrote about the meeting preview. We’ve seen better buying in EURGBP, on the day and any spikes into 0.8660 would be a possible topside area on the day to fade.

Big support in crypto

The Crypto space is also a must-watch for technical and price action traders. It was looking pretty dicey yesterday, but there's been a solid defence across the coins we offer and Crypto have seen the best bullish net change in our universe. Bitcoin has impressively held onto 33,700 and pushed into the 20-day MA at 36,646. It needs to push into 39.460 and the top of the recent range to really attract, but we will need to see a break here for the bulls to feel we’re out of this period of vulnerability.

(Source: Tradingview)

Ethereum has been consolidating in a triangle formation and could break either way – when it does that should be respected. This is also true of DOT, DASH, and others too. The bear trend is over for now, but Crypto is not where movement lays low for too long, so this feels more like the calm before the next storm.