TA Tuesday: Market participants are protected against downside risk

Let’s begin by looking at this week’s macro figures: 

Wednesday 10:  
US CPI (expected: 8.7% YoY, previous: 9.1% YoY)
German CPI (expected: 7.5% YoY, previous: 7.5% YoY)

Thursday 11: 
US PPI (expected: 0.2% MoM, previous: 1.1% MoM)
US Initial Jobless Claims (expected: 263K, previous: 260k)

Friday 12: 
GBP GDP (expected: -0.2% QoQ, previous: 0.8% QoQ)
GBP Manufacturing Production (expected: -1.8% MoM, previous: 1.4% MoM)

Everyone’s attention is focussed on the US CPI numbers. NFP numbers on Friday largely beat expectations: +528k vs. the expected +258k. Therefore, a high inflation number might push the Fed to move more aggressively than currently expected (current FOMC target rate probabilities for September 21: 63.3% 300-325bps).

In my opinion, market participants are already too protected against downside risk, and I am not expecting a spike in volatility before or after the press release. Also, as a consequence, I see risky assets inching higher. Then again, geo-political tensions coupled with the released earnings might weigh on equities – and, consequently, on crypto.

On the crypto side:
Here, all eyes are on the ETH merge. 

The ETH basis moved lower with September Futures on FTX trading at a $10 discount, and December at a $40 discount. This is the consequence of many stories and rumours about the possibility of having a forked proof of work ETH and a proof of stake coin. Traders are buying the Spot ETH and selling the Longer-term Future to take advantage of this possibility. Therefore, holding ETH will let you receive the forked asset that might be quite valuable.

$BTC: 23,850$ (+2.47% WoW) 
$ETH: 1,780$ (+9.06% WoW) 
$SOL: 42.3$ (+1.54% WoW) 

I still think that high-betas (e.g. ALTs) will outperform BTC. This is because of the current risk-on market and also the fact that there is a potential for positive news (e.g. new projects) coming in September/October.

On the derivatives side: the ETH-BTC ATM IV spread is getting wider and wider (average premium for all maturities: 30 vols vs. 20 vols 1 wk ago) meaning that market participants are enthusiastically pricing a move up in ETH.

Looking at ETHUSD 1d:

We are still in an upside channel and testing the USD 1,800-2,000 resistance. RSI is almost overbought, which means that a short-term reversal is reasonable. Overall, if it breaks the yellow band, $2,500 is the next target; otherwise, we will return to the USD 1, 000-1,200 support.

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