TA Tuesday: Fed Cuts, Crypto Gains, and USD on the Rise


Week-over-week performance:

  • BTCUSD: 65,296 / +4.81%   
  • ETHUSD: 2,593 / +7.33%    
  • US10Y: 4.09% / +9 bps   
  • DXY: 103.31 / +0.89%   
  • GOLD (USD/OZ): 2,641 / -0.15%    
  • SPX: 5,859 / +2.88%   
  • NDX: 20,439 / +3.23%   
  • DVOL: 56.96 / +1.24%   
  • VIX: 19.69 / -13.07%

 Looking ahead – Economic calendar:

  • Tuesday, 15 October 2024: US Banks’ earnings, WLFI token sale, XRP Swell Event
  • Wednesday, 16 October 2024: UK CPI, Robinhood announcement (crypto?)
  • Thursday, 17 October 2024: EU CPI, ECB Interest rate decision, Sukkot (Jewish holiday) until 23 October 2024, US Jobless claims, US Retail sales
  • Friday, 18 October 2024: CN GDP, US Building permits

On the macro side:

Last week, the FOMC minutes hinted that rate cuts might be more gradual than expected. The US CPI came in slightly above expectations, while US PPI was slightly below, with the 12-month PPI at 1.8% (below the Fed’s 2% target): the US economy is in good shape. In response, markets have finally adjusted their expectations for Fed rate cuts, and implied yields from Fed Funds Futures are now aligned with the FOMC’s Dot Plot.

Currently, there is an 88% chance of a 25 bps cut in November, followed by an 80% chance of another 25 bps cut in December. This shift in expectations has been a key driver of the recent USD rally against the G10 currencies.

The US economy continues performing well, with no urgent need for aggressive rate cuts to avoid a crisis. Combined with anticipated government spending, this performance continues to support risk assets. Volatility grinds lower, with the VIX sub-20 into Thursday’s fixing. Positive earnings from US banks are reinforcing my sentiment.

Meanwhile, China’s fiscal stimulus announcement over the weekend represents another attempt to boost its economy, and the scale of this stimulus could provide further support for crypto markets.

Given the relatively light macroeconomic calendar this week, I expect current market trends to persist.

On the FX side:

The repricing of the Fed’s expected rate cuts, along with the anticipated ECB cut this week, has fueled a USD rally, pushing the DXY above 103, while EURUSD is trending back towards 1.08.

However, this movement has been largely driven by interest rate differentials between economies and has not significantly impacted other asset classes.

From a technical perspective, 103 is acting as a support level, with 103.5 as the next resistance.

DXY 1d - 15.10.2024

Chart 1: DXY 1d 

On the crypto side:

Crypto rallied from the bottom following the softer-than-expected CPI, triggering the liquidation of many leveraged shorts. Monday’s move is hard to attribute to any specific news, as there were no significant updates, and the week-over-week performance aligns with broader market beta, with a few exceptions like AAVE, FTM, and meme tokens, which continue to see strong demand.

Last week, I mentioned the lack of correlation between TradFi and crypto markets, but that gap now seems to have closed.

On the political front, according to Polymarket, Trump is currently leading Kamala by 10 points in the election polls, which is bullish for crypto. Additionally, the upcoming sale of World Liberty Financial Token, a Trump-backed asset, will be interesting to watch this week.

In derivatives, while the futures basis naturally ticked up after yesterday’s rally, options markets have remained relatively stable in terms of at-the-money implied volatility. However, we have noticed a repricing of skew, with calls now trading at a premium over puts. If the market continues to rally, there is more room for both basis expansion and further widening of the call-to-put premium, which is why I remain bullish on 2-month+ tenors that could capitalise on this setup.

On the downside, we are seeing strong selling pressure on BTC October 25 calls at USD 65,000 and USD 70,000, indicating that all-time highs before the election may be capped.

From a technical standpoint, the key area of interest in BTCUSD remains above USD 66,700, which has yet to be tested. Immediate support sits at USD 65,000, with USD 63,000 likely to follow if USD 65,000 does not hold. If USD 67,000 is breached, I expect some violent moves, but I maintain my view that we are no longer in a mean-reverting regime.

BTCUSD 1 D - 15.10.2024

Chart 2: BTCUSD 1d 

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