After reaching USD 66,000 last Friday, a short-term reversal appeared likely due to multiple overbought signals, while longer-term indicators have turned bullish.
The stronger-than-expected reversal was driven by Jerome Powell’s cautious stance on rate cuts and escalating tensions in the Middle East. Powell’s remarks on Monday strengthened the USD, putting downward pressure on BTC. The situation worsened on Tuesday after a missile strike by Iran on Israel, prompting investors to flee risk assets in favour of safe havens such as the dollar and gold. This resulted in a drop of over 10% in BTC from its Saturday highs, bringing it down to approximately USD 59,800.
Over the past three days, several attempts to push BTC below USD 60,000 were quickly bought up, with the 200-day EMA near USD 59,900 providing strong support until now, suggesting early signs of a local bottom. However, if geopolitical tensions overshadow optimism stemming from central bank liquidity injections, BTC could quickly test the low USD 50,000 levels.
Following the recent sell-off, ETHBTC dropped below 0.04, testing its mid-September lows slightly above 0.038; it is currently trading around 0.0389. This reaffirms that, despite some altcoin outperformance during the recent rally, when BTC experiences a significant decline, altcoin beta comes into play, with neither ETH nor other altcoins able to maintain their positions. A sustained altcoin season would likely require BTC to break out of its current 6-month range. If sentiment turns excessively bullish too quickly, with traders rushing into meme coins (beta plays for the respective chain, e.g. WIF for SOL, PEPE for ETH) before BTC confirms a breakout, it could lead to inefficiencies and i increasing the risk of retests and liquidations of over-leveraged positions.
BTC’s 30-day at-the-money (ATM) implied volatility increased from 51% to 54% (+3% WoW), while ETH’s implied volatility rose from 58% to 63% (+5% WoW). The 25-delta skew for BTC turned negative for 0-14 day time frames, while it remains positive and slightly rising for longer durations. For ETH, the skew is also negative in the 0-30 day time frames and generally lower than BTC across 0-90 days, but is higher than BTC over longer periods, indicating no near-term outperformance of ETHBTC.
On Monday, China’s central bank announced plans for banks to lower mortgage rates by 31 October to stimulate the housing market. Meanwhile, Fed chair Jerome Powell stressed that the recent 0.5% rate cut should not be seen as an indication of more aggressive cuts ahead, with inflation expected to decline further. In response, the USD strengthened (DXY went from 100 on Monday to touching 102.1 in yesterday’s session) and risk assets fell.
On Tuesday, the Eurozone’s CPI fell by -0.1% for September, with a year-on-year increase of 1.8%. In the US, job openings rose to 8.040 million in August, beating expectations of 7.640 million. However, the Iranian missile strike on Israel has heightened fears of escalating tensions, triggering a risk-off sentiment in the markets. This caused US equities and the broader cryptocurrency market to decline, while gold surged above USD 2,670 before easing slightly this week.
On Wednesday, US ADP nonfarm employment exceeded forecast with a 143,000 increase in private sector jobs, while Initial Jobless Claims slightly missed expectations (225,000 vs. 222,000 expected).
This afternoon, all eyes will be on US Nonfarm Payrolls, which are expected to come in at 147,000. Given Wednesday’s robust ADP employment data, there is a heightened chance that NFP figures may exceed expectations as well.
Looking ahead to next week, key economic events include the FOMC Meeting Minutes on Wednesday, US Core CPI and CPI data on Thursday, as well as UK GDP, German CPI, and US PPI on Friday.
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