Week-over-week performance:
- BTCUSD: 56,847 / -3.96%
- ETHUSD: 2,341 / -7.14%
- US10Y: 3.71% / -21 bps
- DXY: 101.61 / -0.15%
- GOLD (USD/OZ): 2,504 /+0.40%
- SPX: 5,471 / -3.13%
- NDX: 18,660 / -4.67%
- DVOL: 58.38 / +9.43%
- VIX: 19.46 / +29.65%
Looking Ahead – Economic Calendar:
- Tuesday, 10 September 2024: Trump vs. Harris public debate
- Wednesday, 11 September 2024: UK GDP, US CPI
- Thursday, 12 September 2024: ECB interest rate decision, US Jobless claims, US PPI
On the macro side:
Last week’s data pointed to a weakening US job market, with the headline NFP coming in 15% below expectations, or 23,000 fewer jobs than anticipated, prompting a further sell-off in risk assets.
In the Fed fund futures market, we observed significant intraday moves, with current pricing showing a 27% probability of a 50 bps rate cut in September, and the year-end target rate still projected to be between 425-450 bps.
I see this as the potential tail event, should the Fed likely implement three 25 bps cuts (75 bps total) rather than a full 1% or 1.25% cut.
Chart 1: Target Rate Probabilities for 18 December 2024 Fed meeting
Despite this backdrop of uncertainty, the VIX peaked at around 24, with the VVIX at 137.
The VIX term structure remains relatively flat compared to the 5 August SPX bottom “panic” scenario, suggesting that current market positioning may be more about seasonal hedging.
It also indicates that short-vol players may be ready to step in if the front-month VIX rises above 21.
Chart 2: VIX term structure – today vs 5 August 2024
Today’s debate between Harris and Trump will be closely watched ahead of the CPI and the PPI.
On the FX side:
The DXY bounced off the 100.5 support level but remains confined to a narrow range below 102.
This week, the ECB is expected to cut the deposit rate by 25bps to 3.5%, likely to be followed by another 25 bps reduction later this year.
However, with EU growth stalling and fiscal consolidation measures in place, the positive impact of lower rates may be limited.
Despite the narrowing yield differential, I do not see the EUR as the currency of choice yet. With EUR/USD forming a lower high at 1.1155 and a lower low at 1.1028, the pair seems poised to trade in a lower range. Upcoming data from Switzerland will be crucial, especially if we see export industries struggling due to the strong CHF. This could prompt the SNB to intervene, but it is not yet the time.
Chart 3: DXY 1d
On the crypto side:
Crypto markets continue to struggle, mirroring the high beta behaviour seen in traditional equities. Altcoins in particular are struggling to gain momentum, with a few exceptions such as AAVE, which remains strong, and MKR and UNI, which are showing some resilience in the DeFi space.
I want to emphasise that the upcoming presidential debate is a pivotal event for crypto. Polymarket currently has Trump at 52% and Harris at 45%, while traditional media has Harris in the lead. If Trump emerges as the clear winner, I expect a positive reaction in the crypto markets, with SOL potentially leading the rally.
On the derivatives front, sentiment remains bearish. Perpetuals are trading at or below spot prices, and puts are trading at a premium to calls until 27 September for BTC and 25 October for ETH. Elevated volatility is justified, and long positions in 13SEP24 volatility have performed well. Notably, risk reversals have been bought during sharp downside moves, such as Friday’s lows, while the upside to March has been blocked by significant call option activity at USD 100,000+ strikes.
The BTCUSD local bottom between USD 54,000 and USD 52,500 saw quick buying, but price action remains weak, with sharp moves up, like Monday’s rally to USD 58,000, quickly sold off. Realised volatility sits in the 50s over a 7-day window, and with this week’s events in mind, USD 58,500 remains a key resistance, while USD 55,500 serves as immediate support.
Chart 4: BTCUSD 1d
ETHUSD continues to underperform and is trending lower against BTC with ETHBTC approaching 0.04. ETHUSD recently crossed its 7-day moving average, and with the 30-day MA at USD 2,540, there is room for a short-term rally of 8%, especially with the RSI-14 currently in the 40s.
Chart 5: ETHUSD 1d
Read more News here
