TA Tuesday: Central Bank Rate Cut, Crypto Volatility, and Market Focus

Last week, the Central Bank of China made waves with an unexpected 15 basis point reduction (to 2.50%) in interest rates, dragging the Chinese yuan down to its lowest level since November of last year (-5% YTD USDCNY). This comes amid escalating economic anxieties and a depreciation of the Chinese yuan. Several news agencies reported that China’s leading state-owned banks have been observed buying off in both offshore and onshore spot FX markets in order to protect the decay of their currency; this also elevates the cost associated with shorting the currency. Historically, utilising FX swaps to augment the cost of shorting has been a primary tool in the hands of authorities to shape the yuan’s trajectory.

Last Friday, Eurostat reported a CPI increase in July of 5.3% YoY, which is a decline from 5.5% in June and in line with analysts’ expectations. The news confirms that Euro zone inflation has decelerated and consequently suggests a reduced urgency for the ECB to continue with further hike rates. Despite lower inflation, the ECB must navigate challenges from stalled economic growth (German PPI for July reported on Monday -6% YoY vs. consensus -5.1%), even as market expectations point to sustained inflation above 2% in the foreseeable future.

Looking ahead:
This week, the primary focus in on the Fed’s Jackson Hole meeting, which commences on Friday, where the markets expect Powell to address the recent robust economic figures and the rising yields. Other noteworthy events include the release of the PBoC Loan Prime Rates on Wednesday, the CPI numbers from Japan on Thursday, and the German GDP on Friday.

On the crypto side:
After last week’s sharp decline, marking its worst drop since November 2022’s FTX crash, BTC is currently trading around the $26,000 range while ether is hovering above the $1,600 level.

After the drop from Thursday to Friday, BTC is forming a tight channel between 25,850 and 26,250. If there is a breakout upwards, it could head to the next resistance at 27,000. And another resistance at 28,000. If there is a breakout downwards, the zone between 24,750 and 25,000 provides a sustainable support zone.

  • Support Levels: 25,850; 24,750-25,000
  • Resistance Levels: 26,250, 27,000, 28,000, and 29,000

Since last Friday, we are back at the price levels from before the Ripple vs. SEC decision and the rally. These levels might again present favourable entry points for Ripple. Currently, we are again at the lower end of the trend channel. On the downside, 0.49 forms a strong support zone. On the upside, 0.55 poses minor resistance. Beyond that, there is room to move towards the upper end of the trend channel and 0.6.

As a trade idea, the following trade could be set up with a risk-reward ratio of 2.3:
Buy at 0.52; stop loss at 0.4850, and take profit at 0.60.

  • Support Levels: lower trend channel, 0.49, 0.4650
  • Resistance Levels: upper channel, 0.55, 0.6

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