Last Friday, the released PCE Price Index data came in slightly lower than expected, indicating stable prices, and increasing the likelihood of a rate cut by the Federal Reserve later this year. Coupled with worse-than-expected US labour market data, the USD weakened, which boosted risk assets. BTC began its rally on Monday, reaching USD 70,300 during the US session before reversing and finding support at USD 68,600 during Tuesday’s European session. JOLTs Job Openings data was lower than expected on Tuesday (actual: 8.059M, expected: 8.37M), causing the USD to fall and pushing BTC above USD 70,000. This resulted in the second-highest total spot ETF inflow since inception, surpassing USD 886.6 million.
On Wednesday, US ADP nonfarm employment figures also came in lower than consensus, further supporting the case for rate cuts. With strong TradFi flows, BTC surged above USD 71,000, peaking just below USD 71,800. Yesterday, the ECB decreased interest rates by 25 basis points, as expected. Following the ECB’s move, BTC tested the USD 70,100 level at the US closing, and has since recovered, currently trading above USD 71,000.
However, if BTC fails to push above USD 72,000, I anticipate a short-term bearish reversal (similar to the set-up on March 13). Since May 20 (amid rumours about an ETH ETF), Open Interest for BTC has risen by approximately 20%, and funding rates have tripled (for ETH, Open Interest increased by more than 45%, with funding rates nearly doubling), putting late long entrants at risk, and raising the possibility of a quick, deeper leverage flush, which could present a good buying opportunity. If this occurs, USD 70,000 and then USD 69,100 will be key levels to watch.
ETH underperformed BTC this week, with ETH/BTC falling from a high of 0.0575 last week to 0.0532 after SEC head Gary Gensler stated that S-1 approvals would take some time. ETH traded in a range between USD 3,730 and USD 3,890, currently trading above USD 3,800 with key support at USD 3,700 and initial resistance at USD 3,900.
The 30-day BTC ATM implied volatility slightly increased from 50% to 51% (+1% WoW), while the 30-day ETH ATM implied volatility decreased from 63% to 61% (-2% WoW). The 25-delta skew is positive for both BTC and ETH across all time frames, with a higher skew for ETH. Short-term bearishness has dissipated, and options markets are pricing in bullish momentum.
This afternoon, all eyes are on NFPs, which will provide more insight into the Federal Reserve’s potential actions. If the data is below expectations, there is a high likelihood of a further weakening USD and a potential breakout attempt by BTC towards its all-time high of USD 73,000.
Key economic events next week include German CPI on Wednesday, US CPI, and the FOMC with the Fed Interest Rate Decision (traders are currently pricing a 97.5% likelihood of maintaining interest rates at the current level), US PPI on Thursday, and the BOJ Interest Rate Decision on Friday.
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