TA Tuesday: Macro Moves, Forex Flickers, and Crypto Clarity

Week-over-week performance:

  • BTCUSD: 34,914/ +1.72%
  • ETHUSD: 1,895 / +5.04%
  • US10Y: 4.64% / -18bps
  • DXY: 105.38 / -0.95%
  • GOLD (USD/OZ): 1,973 / -1%
  • NDX: 15,154 / +5.71%
  • VIX: 14.9 / -24%

On the macro side:

With the Federal Reserve hitting the pause button on interest rates, and there being less than stellar macroeconomic indicators, traditional markets experienced a relief rally.

The SPX and NDX surged by over 5%, the VIX dropped below 15, UST yields made a significant downward move, and the US dollar took a step back.

Despite last week’s impressive performance, which could signal the start of a new bull market for global equities and bonds, I do not think the macroeconomic landscape has changed fundamentally.

Instead, the recent correction appears to be the result of a robust repositioning driven by an overly bearish sentiment.

My bias is that “not bearish” does not automatically mean “bullish”; I am waiting for confirmation.

Looking ahead:

  • Wednesday: German CPI (YoY exp: 3.8%, MoM exp: 0%) and Fed Chair Powell’s speech
  • Thursday: US Initial Jobless Claims (exp: 215k), Powell’s speech, and Fed’s balance sheet
  • Friday: UK GDP (QoQ exp: -0.1%)

On the FX side:
Amid the influx of macroeconomic updates, there has been a notable decline in the US dollar, with DXY revisiting the 105 level before starting to bounce back.

As I have said before, this price level is in line with my preference for the USD, and I expect to see a reaffirmation as it climbs back above 106.

Chart 1 : DXY 1d

Translating this into relevant pairs:

  1. EURUSD: Attempted a channel break but did not quite make it. After hitting my target at 1.07, I am looking for a retest at 1.061 (bearish).

  2. EURCHF: Playing with the trendline once again. A breakthrough at 0.96735 looks like a solid entry point, target 0.9844 for the take-profit, and set the stop-loss at 0.96047 (bullish).

  3. USDCHF: As the weakest link, a reversal at 0.8952 looks promising for a long entry. Despite the likely trendline resistance, I have my eyes on 0.918 as a take-profit level (bullish).

  4. GBPUSD: Broke the wedge to the upside but stumbled at 1.2418. I am now targeting 1.2248 for the next move (bearish).

German CPI and UK figures are the catalysts.

Chart 2 : FX Matrix 1d

On the crypto side:

While traditional macro assets rallied and equity vol softened on future certainty, crypto and crypto implied vol did not follow.
To me, this is not a de-correlation, but rather a lag on the back of last week’s outperformance.

Spot prices continue to hold (bullish), implied volatility remains high (bullish), vol term structures remain rich (bullish), risk reversals massively favour calls (bullish), and futures yields are historically high (bullish).

However, traders are definitely positioned for a continuation high in the $40k area, but at the moment I believe there is far too much euphoria in terms of derivatives positioning that could hurt the spot prices should a lack of positive news come in (i.e. ETF spot approval).

I think crypto vol is following equity vol, and that is why I expect crypto vol to fall as the spot ETF is unlikely to come before 24 January.

Similarly, butterflies remain very steep for all tenors, BUT: OTM puts trade at ATM vol, making upside optionality far too expensive to buy.

A maturity I like is 29Dec23, with ATM vol trading at 56.4%, 10d BF at 7.26%, and 10d RR at 9.45; the trade I like best continues to be selling calls to buy puts delta-hedged with spot.

Then, with call wings so steep, I like to express my bullishness with call spreads, that have a very good convexity and give me a nice leverage (think +ATM -25d at 90-days+).

Chart 3 : VIX vs. DVOL 1d

Looking at the spot side, $36k marks resistance and I am looking for a retest of $34k before a bullish H&S into the $38k mark.
Failure to hold $34k will bring us to the trendline at $33k.

Chart 4:BTCUSD 1d

I continue to like ETHBTC, and with BTC failing to find a new consensus (which will likely come from an ETF approval), I believe that many traders who have been FOMOed from alts into BTC are heading back to their alts.
Therefore, my risk remain set on ETHBTC at 0.058.

Chart 5:ETHBTC 1d

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