Trader thoughts - inflation hedges in demand with Crypto leading

The NZDUSD daily chart interests, with spot pushing back into 0.7200 – a level where traders have been happy to fade of late – The move needs work, but I’d be putting this on the radar for those who like support and resistance.

NZDUSD daily

(Source: TradingView - Past performance is not indicative of future performance.)

AUDNZD has been a trade I’ve liked on the short side and this cross has made a lower low and continues to eye the Sept lows. Sure, Kiwi rates are as rich as you’ll see in the DM world with 2-year swaps at some 3% - and while the RBNZ does hold a hawkish bias and are prepared to act on their guidance – unliked the BoE - are we really going to see 10 rate hikes over the coming 2 years? I personally don’t think so.

AUDUSD couldn’t follow through and take out the 50-day MA, but then it hasn’t pushed up to my limit of 0.7450 either – the 5-day EMA halts play here, so this is one to take the time frame in and see where Asia takes it.

The DXY has lost small ground, which seems odd in a way as US Treasuries have sold off across the curve and yields on the 2-year are +5bp – in fact, go inside the rates market and we see an additional 5bp of hikes priced into fed funds future by end-2022. This is why fundamentals in FX are tough because you’re dealing with a mountain of capital flowing from one geography to another and largely for different reasons. In theory, higher rates should equal a stronger exchange rate, but when we’ve seen US inflation expectations push up 7bp on US 10yr breakeven rates, the result is lower real rates and that seems to be countering the move in interest rates and is weighing on the USD.

I remain in the USD tactical bull camp and would be looking for moves in EURUSD into 1.1616 (the 4 Nov high) to gauge how the broader market feels about the pair. A daily close above here and we could see a further squeeze into the 50-day MA at 1.1675. This could take the DXY to 93.50. Again, let’s see what the US CPI print brings.

USDJPY looks to be breaking down through the range lows of 113.25, with traders looking to take this down to the figure. I may be a tactical USD bull, but I need a hot US CPI print this week and my USD view is one formed on a medium-term fundamental belief – if the market is keen to sell USDs I have to go with the flow and either take the loss quickly or trade with the move.

The inflation vibe seems to have caught on in XAU, with XAUUSD grinding higher – it’s a slow burn being a gold bull and holding, which is why so many have moved over to Crypto land, where we can get $3000 in a session. In fact, Gold 1-week implied vol has dropped to 13.4% suggesting Gold is expected to move $34 over the week - trading a range of 1853 to 1798 (with a 68.2% level of confidence). Options traders have been better buyers of call vol over puts, and we see the skew of vol now holding a small premium for calls – this seems reasonable given price is going up after all, and hones in on $1833 – the Maginot line, as I refer to it – a closing break here and the Gold bulls should feel excited about.

Silver daily

(Source: TradingView - Past performance is not indicative of future performance.)

Actually Silver looks the better long for me as it eyes 24.87 highs – let's see if the bulls can chop through there.

Crypto is where the fast money is at and it’s all eyes on whether we can see a new all-time high in Bitcoin. Ethereum is there now, it's trending like a dream and I’d be long and strong here – clients are net long, with 79% of open positions held long and I can sense the $5k party could get going soon.

Ethereum daily

(Source: TradingView - Past performance is not indicative of future performance.)

Link looks good, with price printing a higher high and a move into 36.0 should be watched for supply, similar to what we saw in Sept. Dot looks set to go higher and would be closing longs on a daily close below the 5-day – if this kicks then would add.

Small gains seen in US equity markets, although they have largely been a sideshow - that said, we’ve seen some good volume in the US30 and HK50. Tesla has been well traded, where the net position is for upside from clients. A fall of 3.2% is not terrible and reflective that investors are not put off given Musk is selling down due to tax position as opposed to a view the stock has run too hard – well, at least that seems to be the vibe I’m sensing.

Crude has etched out gains of 90bp – a lot of focus on weekend comments from the UAE energy minister that crude prices would be “double or triple” if not for the actions of OPEC. There is also focus on whether we do indeed see the US release some of its SPR and that’s holding the crude buyers back – the oil heads are pointing to production numbers from Shell’s Mars and Ursa sites and suggesting with output at the highest levels since June, that US output does actually require a release of US reserves.