Yesterday (August 1w4th) marked the highlight of the week ith the release of the US CPI data. The data showed that the unadjusted year-on-year CPI for July in the US was 2.9%, falling for the fourth consecutive month, and returning to the “2” range for the first time since March 2021, slightly below the market expectation of 3%. The core CPI year-on-year was 3.2%, in line with market expectations. However, digital currencies experienced a significant drop after the data was released, with BTC dropping from 61,000 to 58,000, a decline of over 5%. Ethereum initially showed strong resilience, stabilizing after a short-term drop to 2,650, but fell again to slightly above 2,600 mark in the final hours of the day, with an intraday decline approaching 5%. Some traders questioned this reaction, arguing it was not the expected response to “in line” CPI data. They noted that as a highly correlated pair, ETH usually fluctuates more violently than BTC, thus being somewhat surprised by yesterday’s market behavior. We will delve further into this.

Source: SignalPlus Economic Calendar; TradingView

After the CPI announcement, the yield on the US 10-year Treasury note rose initially, then fell, and gradually rose again throughout the day. It seems that after the previous day’s PPI release, the market’s expectations for CPI were generally lower than the actual results, making the outcome disappointing for a dovish market. A closer look at the report suggests that the accelerated rise in rental prices might have triggered the market’s disappointment: in June, “Owners’ Equivalent Rent” hit its lowest level since 2021, but in July this indicator accelerated to 0.36%, and housing prices rose by 0.4% compared to 0.2% in June, raising market doubts. However, since this indicator has a slightly lower weight in the Fed’s preferred PCE index, PCE will be slightly lower than CPI. Orion’s Chief Investment Officer Rusty Vanneman stated that there is still a significant likelihood of a rate cut in September, but the current inflation issue is more troublesome than the Fed has expected, leading to a reassessment of the possibility of a 50 basis point rate cut in September.

With inflation successfully falling below 3%, investors can shift their focus from inflation to economic growth and employment. Brandywine Global investment manager Jack McIntyre said, “US CPI data is important, but in terms of market impact, it might rank third among economic data — employment numbers, retail sales, and inflation, so it’s not that critical.” Tonight, retail data will be released, and the volatility at the front end of the options curve remains flat, implying this uncertainty.

Source: Investing

In another news, the US government transferred 10,000 bitcoins to Coinbase Prime, causing market concerns about potential sell-offs and leading to the drop in Bitcoin prices. In terms of options transactions, there has been a significant demand for put protection in the medium to short term for BTC, leading to an overall drop in risk premiums at the front end. Looking at overall volatility levels, the front-end implied volatility (IV) for ETH ended its clear decline after the CPI release, while BTC maintained an upward trend due to higher actual volatility and potential selling pressure uncertainties. Tonight’s US retail data will once again test the digital currency market.

Source: SignalPlus, Overall reduction in BTC RR

Source: SignalPlus, Distribution of BTC Trading

Source: Deribit （As of 16 AUG 8: 00 UTC）

Source: SignalPlus