On the Macro Side:
Looking ahead, these are the major figures I am focusing on this week:
Tuesday, July 19: EU CPI (exp: 8.4% YoY, previous: 8.1% YoY)
Wednesday, July 20: UK CPI (exp: 9.3% YoY, previous: 9.1% YoY)
Wednesday, July 20: US Crude Oil Inventories (exp: 0.333M, previous: 3.254M)
Thursday, July 21: BoJ Outlook Report (YoY)
Thursday, July 21: ECB Deposit Facility Rate (exp: -0.25% i.e. 25bps, previous: -0.5%)
The target rate probabilities expected for the Fed Meeting on July 27: a 69.1% probability of a 225-250 target rate (75bps), and a 30.9% probability of a 250-275 target rate (100bps!).
I believe market participants are now well positioned and have moved out of most risky positions. This means that even a 1% rate hike will not be that dramatic but rather necessary.
The risk-reward in selling now is bad compared to the opportunity in buying. DXY is at 107.4, and the US 10y Yield is trading at 2.971%. I feel comfortable in investing my USD in other assets now.
Comparing the US figure with the EU one, the situation is dramatic:
Chart 1: US & EU 3m Yield, Inflation YoY and vertical spread:
The ECB is well behind the curve as many countries (e.g. Germany) are already in a recession, and the energy crisis is knocking on everyone’s door. The spread between the 3mo-Yield of EU Bonds and 3mo-Yield of US Bonds is likely to mean-revert soon as we are now trading in the bottom 5% of all historical records. The ECB will react SOON, starting with an increase in rates and then (I suspect) continuing to depreciate the EUR currency (further?). Will it be enough? I do not really think so.
While I do not think an EU crisis will have a direct impact on cryptocurrencies, it is very likely that an energy crisis will bring down the entire market – even crypto.
On the FX side:
Last week, I called a long position on EURCHF at 0.985 with a take profit at 0.998. Now, we are trading at 0.9904, and I am here to reconfirm it. The numerous events happening this week will certainly bring some volatility, so I am expecting the pair to be range-bounded once the upper limit is reached.
EURUSD is now trading at 1.012. I still expect it to be traded regularly below parity as the discrepancy between EU and US is getting (and will get) larger and wider in all terms.
On the Crypto side:
I believe that contagion fears are ALMOST behind us
Markets are realising that DeFi (and smart contracts in general) have worked and are working well.
$BTC 21867$ (+9.7% WoW) // $ETH 1517$ (+38.46% WoW) // $SOL 43.2$ (+29.43% WoW) // $MATIC 0.9120 (+62.19% WoW)
The news about the ETH merge, together with the more than 40k ETH Jul 29 calls bought on Friday along with the illiquid weekend, allowed for a great gamma squeeze (short coverage) that brought $ETH into the $1,500 area. Also MATIC, on the wave of great news (i.e. Disney collaboration), is up 165% MoM!
Looking at the MATICUSD chart:
$MATIC inched higher once the reverse head and shoulders verified. RSI is overbought as we are in a consolidation phase. I am happy to slowly accumulate, waiting for the short-term reversal (between 0.75$ and 0.88$). Then, I will not be surprised to see MATIC trading again above $1. Here are my take profits: 0.999$ (tp1) and 1.22$ (tp2).
Looking at BTCUSD:
BTCUSD broke the triangle and is now re-testing the $23k resistance. Heikin Ashi candles are still in favour of momentum and RSI is still below 60 (not overbought… yet).
$BTC is likely to be range-bounded between $18.5k-$22k if it is not able to break the upper resistance. Otherwise, all the way up towards $25k.
In both cases, I expect ALTs and DeFi to outperform BTC as a side effect of the risk-on appetite in the market.