TA Tuesday: Dovish signals, USD trends, and crypto outlook

Week-over-week performance:

  • BTCUSD: 63,463 / +0.06%
  • ETHUSD: 3,067 / -3.31%
  • US10Y: 4.47% / -15 bps
  • DXY: 105.18 / -0.72%
  • GOLD (USD/OZ): 2,322 / +0.13%
  • SPX: 5,180 / +1.25%
  • NDX: 18,093 / +1.75%
  • DVOL: 55.35 / +4.90%
  • VIX: 13.48 / -8.17%

Looking ahead – Economic Calendar

  • Tuesday 07 May: CH Foreign Reserves (USD)
  • Thursday 08 May: BoE Interest Rate Decision, US Jobless Claims, Fed’s Balance Sheet
  • Friday 09 May: UK GDP

On the macro side:

Last week was packed with economic updates, which largely favoured risk assets.

Both the FOMC and the QRA were more dovish than anticipated.
Powell’s FOMC remarks suggested a reluctance to raise rates, and he announced a reduction in QT from USD 60 billion to USD 25 billion per month.
Meanwhile, the QRA decided to maintain issuances at longer maturities, easing concerns about a surge in long-term yields.
All in all, this should lower the USD and control the yield curve (this is something very close to yield curve control policy).

Friday’s US data reaffirmed the upbeat macro-outlook, and helped risk assets rally from recent lows.
US Non-Farm Payrolls came in below expectations at USD 175,000 vs. USD 240,000, the unemployment rate (finally) rose to 3.9% from 3.8%, and the average hourly earnings showed a monthly slowdown from 0.3% to 0.2%.

Looking ahead, markets are pricing in a year-end Fed rate of 4.75%-5%, 50 bps lower than the current rate.
On the back of a quiet macro week, the macro picture for the US Equity is light, and with the VIX so relaxed and a 10y yields drop 15 bps, I am biased towards higher equities.

Chart 1: Target rate probabilities for the 18DEC24 Fed meeting (today vs. one week ago)

On the FX side:

As the macro news was bullish for US risk assets, there was a clear tone that policy makers want a lower US dollar.
We will see if they deliver, but so far DXY looks capped at 106.2 with decent support at 105 first and the 104.27.
Last week’s economic news was the signal for me to go from a net long USD to a short USD.

A lower USD is definitely bullish for crypto.

Chart 2: DXY 1d

On the crypto side:

It was another rollercoaster ride, with bitcoin managing to close the week in positive territory despite a notable 11% drop to USD 56,500, spurred by uncertainties surrounding interest rates and the FOMC meeting.
Sell pressure on GBTC seems to be easing as the ETF saw its first ever inflow (I definitely did not see this coming).
Coinbase reported an EPS of USD 4,40, supported by robust revenues related to the ETF business.

ETF flows will now (or soon) become less relevant in terms of the market’s reaction to strong buy/sell activity.
ETF flows will become an output: when sentiment is positive, we will see inflows, and when it is negative (as it was last week), we will see outflows. And soon I will no longer change my positioning based on the ETF figures.

In the absence of a specific crypto narrative, my inclination is that crypto will regain and maintain its correlation with SPX and NDX, which is bullish at the moment.
The USD 56,500-60,000 range has attracted interest, while aggressive selling has been above USD 65,500, contributing to lower lows and lower highs in a tightening market.
Given these factors, I remain in a wait-and-see mode, leaning towards accumulation and buying on previous lows.
In derivatives, with the current 30-day IV standing at 53%, I still find it quite rich and therefore continue favouring selling volatility at these levels.

Chart 3: BTCUSD 1h

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