Crypto volatility on our radar as the bears establish signs of control

Excluding Crypto, it's been a fairly quiet affair in markets as traders look ahead to today's US CPI print (22:30 AEST), as well as earnings from Goldman and JP Morgan. I cover the moves and set-ups in the daily Navigating Markets video – take a look.

Banks have outperformed with buying in both names, in whats' been a positive tape for equities – happy to hold a positive bias for now (in equities) and small long in banks and short SPY ETF.

Crypto is moving and a number of bearish reversals have come up on the radar. These need monitoring for follow-through in the session ahead. Ethereum has printed a bearish reversal on the daily and is again testing the 200-day. Bitcoin has also printed a reversal lower and testing the rising trend support, for a possible test of horizontal support 31130 – a close through here and this period of lower vol could be over and things could get a little wild.

Link failed to close above 20, a level I've wanted to see close above, but alas the trade has come to me and has since pushed mid-range. Why have Crypto’s done this? I've no clear reasoning, but Crypto for me is a pure speculative vehicle, so price is the truism and aggregates the collective thoughts of the market. At this point the bulls have failed miserably to state their case and the structure and the sentiment of the market are shifting. A break, close and hold of these lows could set off alarm bells and this period of lower vol in Crypto could be firmly over – stay alert.

US CPI is now in play – my back of the envelope playbook is that we’d need a headline YoY number north of 5.5% to really set this market ablaze, with internal components such as rents, autos and apparel suggesting inflation will stay hot for some time. We know inflation will be transitory, it’s a question of how long it takes for the YoY change to head back to 2%. Banks should fly as nominal bonds yields lift higher and the USD should work well, specifically vs the funding currencies.

A number below 4.5% on the headline print and we should see USDJPY and USDCHF under pressure – Gold is not straightforward, as it really depends on what happens to real rates or bond yields adjusted for inflation expectations. I lay out my Gold trade case in TradingView. I guess things become a little more problematic on a hot CPI print, as Powell will be testifying to Congress not long after and there is no doubt Congressional staff will probe Powell if CPI pushes higher from 5% - this is the forum where communication mistakes are made and markets can erupt.