TA Tuesday: Market Trends, Fed Expectations, and Crypto ETF Anticipation

Week-over-week performance:

  • BTCUSD: 42,801 / +9.64%
  • ETHUSD: 2,304 / -3.64%
  • US10Y: 4.02% / +15 bps
  • DXY: 102.30 / +0.88%
  • GOLD (USD/OZ): 2,032 / -1.45%
  • NDX: 16,649 / -0.10%
  • VIX: 13.07 / -0.98%

On the macro side:

After a remarkable December rally, we approach the new year with a nuanced perspective. 
The landscape reveals an increase in wage gains (inflationary), the US NFP figure surpassing expectations (inflationary), and a stable and historically low unemployment rate (disinflationary).

Post-FOMC Minutes, my interpretation is that the Fed is exercising caution, but beneath the surface, there is a subtle sense of satisfaction as they believe inflation is aligning with their desired trajectory without any significant drawbacks.
With the current Fed target rate of 5.25%-5.5%, the first easing move could materialise as early as 20 March. The probability of this easing stands at 60%, with the expected End-of-Year (EoY) rate projected to hover around 4% (in line with the US10Y).

Chart 1: Implied Fed Target Rates from Fed Fund Futures

Looking ahead:

  • Thursday, 11 January: US CPI, US Jobless Claims
  • Friday, 12 January: UK GDP, US PPI

On the FX side:

As we wrapped up the year 2023, two distinct trends emerged: a weakening USD and a strengthening CHF.

The USD’s decline has been steady, propelled by explicit signals from the Federal Reserve indicating the possibility of rate cuts. 
Concurrently, the SNB affirmed that inflation pressures have alleviated, with no anticipation of it rebounding beyond 2%.
Despite the Swiss inflation forecast suggesting control without alterations to interest rates, a provision exists in case of unwarranted appreciation pressures on the CHF. 
The updated forecast allows the SNB flexibility to counter such situations by implementing lower rates and engaging in foreign currency purchases.
The SNB’s strategic selling of foreign reserves over the past two years has buttressed the real value of the CHF, preventing depreciation.

Considering the SNB’s readiness to intervene, the current levels of EURCHF at 0.9287 and USDCHF at 0.8475 appear to present opportunities with more upside potential than downside risk. 
This is why I find it favourable to take a long position on both, and I do not like buying CHF at these levels.

On the crypto side:

The prevailing theme for this week, and quite possibly the weeks to follow, revolves around the potential approval of the ETFs. 
As we step into this eagerly anticipated period, my inclination is that nothing else will impact prices significantly.

While I maintain a strong bias towards the SEC approval, particularly following Gansler’s thread on X, I remain sceptical about the potential market impact of such an event. 

Our observations on the trading desk indicate that most market participants have been well-positioned for some time now, limiting the upside potential. 
Similarly, the flash-crash we experienced last week helped to clean the leverage in the market as the futures basis is back to normal, limiting the downside risk.
The crucial detail to monitor is the cash inflows into the ETFs in the initial days, likely representing the funds that asset managers have in the pipeline, ready to be deployed to sponsor their funds.

In my opinion, a glance at the options market suggests that excessive volatility is priced in, leading me to favour selling BTC volatility at the 30-day mark. 
Additionally, in the event of the ETF approval, my strategy would include shifting from BTC to ETH. ETH, currently at 0.049, is in a noteworthy downward trend, and could swiftly attract attention for a potential ETH spot ETF.

Chart 2: ETHBTC 1d


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