TA Tuesday: USD Strength Continues, BTC and ETH Show Mixed Performance

Week-over-week performance:

  • BTCUSD: 26,036 / -0.09%
  • ETHUSD: 1,648 / -1.01%
  • US02Y: 4.99% / -0bps
  • DXY: 103.98 / +0.8%
  • GOLD (USD/OZ): 1,923 / +1.36%
  • NDX: 15,052 / +0.12%
  • VIX: 15.08 / -11.08%

On the macro side:

This year’s Jackson Hole speech had a milder tone compared to last year’s speech and also lacked significant new information.

Jerome Powell noted the Fed’s progress in reducing inflation but expressed concern about persistently high prices and the potential need for higher interest rates, helped by strong economic growth and a resilient job market.

This is different in Europe, where a not so strong macro-environment might not help Christine Lagarde “higher for longer” rates policy.

Looking ahead, while September’s federal interest rates are expected to stay unchanged, there is an increasing likelihood of a rate hike in November (target: 550-575 bps), with the probability rising from under 30% a month ago to over 50% currently.

Then, looking at the economic calendar on Thursday, we will have US PCE data and US NFP figures on Friday, which should add some colours.

Chart 1: Target rate probabilities for Nov 1, 2023 Fed meeting (source: https://www.cmegroup.com)

On the FX side:

Despite the steady ascent of the US dollar since July 2023, its performance against the EUR and CHF remains subdued, lingering at relatively lower levels.

Meanwhile, inflation in Switzerland has dipped below the 2% threshold/target.

Although the risk of a second-round effect persists, there is no pressing need for the SNB to implement further tightening measures.

It is doubtful that the SNB’s commitment to long-term price stability will counteract the prevailing demand for USD.

On the contrary, Europe’s economic outlook appears less than promising.
This suggests that Europe might refrain from mirroring the US rate cycle, resulting in a wider policy rates differential with the US.

This should shift the demand, with investors favouring USD over EUR.

Looking at DXY:

There is a possibility of consolidation around the 103 mark.

However, if the appetite for an extended narrative in the US remains, it is likely that we will witness a retesting of the highs achieved in 2023.

Chart 2: DXY, 1d

On the crypto side:

At first, as USD stays this strong, crypto will remain weak.

Following last week’s sell-off, a significant number of long-leveraged traders were affected, as the Futures Open Interest experienced a substantial retracement, triggering a wave of stop-losses.

As these traders work on reconstructing their positions and strategically repositioning themselves for the upcoming market movement, the levels of the previous week’s lows and the current $26,000 mark stand out as robust consolidation points.

Then, key supports will be $25.3k and $24.3k (here I expect many stop-losses) and resistance at $26.9k first and then $28.7k.

Chart 3: BTCUSD 1d

On the derivatives side:

A fascinating trend has emerged – during market surges, BTC implied volatility surges, whereas during market declines, ETH volatility experiences a lift (in relative terms).

Expanding this insight to the spot market, it becomes evident that there is a solid bias toward BTC, suggesting its potential to outperform both in bullish and bearish market scenarios.

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