The U.S. dollar flexes its muscles across the entire financial spectrum, screaming for higher values. The EUR/USD isn’t able to hold above 1.15 for now, USD/CAD regained the magical 1.30 level, and Bitcoin forms a dangerous descending triangle against the $6,000 level.
Ahead of the all-important CPI (inflation) numbers in the United States later this week, the Core data (changes in prices of goods and services excluding energy) points to yet another increase.
This is what the Fed likes to see in the midst of a double tightening cycle: raising federal funds rates and shrinking the balance sheet. It puts the Fed on course for delivering the fourth rate hike this year in December, further fuelling USD bulls.
At this point, relative ranges still hold. But it seems that the USD only builds energy for another leg higher. And, the trigger, this time, might come from a market no one thinks of: the crypto-market.
The danger is that all retail traders or almost all of them are positioned on the long side. If the USD makes a new leg higher and triggers stops below the $6,000, most miners break below the profitability point.
With market forces trying to balance on a sub-$6,000 move, most retail traders will suffer dire consequences. The spillover should bring higher USD/JPY due to equity flows, and a break of recent ranges on other major pairs.
What’s interesting is that last week’s NFP numbers didn’t bring the must expected breakout. If anything, the market’s reaction was confusing, typical for the start of a new month.
But make no mistake, we’re in for a wild run into the last quarter of the year. Again, all eyes on the $6,000 Bitcoin level. It may be the trigger for a spike in financial markets’ volatility.