A Bit More Patience

Nothing has changed structurally for BTC since I wrote the last Macro Monday Trade Letter two weeks ago. The bullish order block is still being respected, and accumulation continues. I expect 1 - 2 weeks of sideways chop, with potential mini “fakeouts” in both directions, but the main thing I am interested in seeing is whether the order block continues to hold. As long as we do not get a confirmed break of this support, it’s simply a waiting game. If price action continues to mimic some more of standard “bore them out of the market” fractals, once (if) things start moving to the upside, the move will be swift.

Crypto

Weekly Review

FTX received court approval recently to initiate the liquidation of its substantial cryptocurrency holdings, which were estimated to be worth $3.4 billion. According to the most recent court documents, FTX's crypto assets include over $1.1 billion in SOL, as well as approximately $870 million in BTC, ETH, and USDT. The second-largest altcoin holding in FTX's portfolio is Aptos (APT) at $137 million, followed by XRP at $119 million, Bit DAO's token BIT at $49 million, and Stargate Finance's STG token at $46 million. The valuations are based on the assumption that the crypto assets would be liquidated at around their current market prices.

The liquidation process is planned to occur in increments of $50 million to $100 million per week. It remains unclear whether FTX's management will sell these holdings directly through centralized cryptocurrency exchanges or opt for over-the-counter (OTC) market makers. However, in both scenarios, there is the potential for a significant impact on the market, given that altcoin trading volumes and liquidity are currently at multi-year lows. While OTC transactions are generally less disruptive, soliciting quotes from market makers could inadvertently lead to information leaks and subsequent price declines. Even before the court's approval of the liquidation plan on September 13, altcoin prices had already started to drop in anticipation of the potential market impact of these sales.

BTC/USD

1-Day Timeframe

Nothing has changed structurally for BTC since I wrote the last Macro Monday Trade Letter two weeks ago. The bullish order block is still being respected, and accumulation continues. I expect 1 - 2 weeks of sideways chop, with potential mini “fakeouts” in both directions, but the main thing I am interested in seeing is whether the order block continues to hold. As long as we do not get a confirmed break of this support, it’s simply a waiting game. If price action continues to mimic some more of standard “bore them out of the market” fractals, once (if) things start moving to the upside, the move will be swift.

ETH/USD

1-Day Timeframe

ETH price has been moving in a descending triangle-like pattern since mid-August, with key areas (Daily Fair Value Gap + Bullish Order Block) still giving positive reactions. If BTC starts moving to the upside after some more consolidation, I reckon ETH price will also head towards the buyside liquidity resting above the relative equal highs at around $2,020. Until then, as long as the FVG, but more importantly the bullish order block continue to hold support, structurally there is nothing to worry about, although a drop to only the 50% mark of the order block, which sits at around $1,475, may seem steep.

Legacy

Weekly Review

The Fed conveyed a clear message at last week’s FOMC through Powell: The Fed intends to maintain elevated interest rates until inflation convincingly approaches the 2.0% target. In this meeting, the Fed kept rates unchanged at 5.25% - 5.5% but retained the possibility of an additional rate hike, sustaining its outlook for a peak fed funds rate of 5.6%. Notably, the Fed's new projections reduced the anticipated number of rate cuts in 2024, from 1.0% to 0.5%, suggesting that the high-interest-rate environment might persist longer than initially anticipated. Policymakers not only surprised the markets by projecting higher rates in 2024 than expected, but also an upward revision in their rate prediction for 2025. Additionally, the central bank raised its growth forecast, acknowledging the economy's greater resilience than initially anticipated.

This somewhat hawkish stance from the Fed prompted a swift market reaction. Treasury yields surged notably, with both the 2-year (which is more sensitive to changes in the fed funds rate) and 10-year yields reaching their highest levels in this economic cycle. This upward pressure on yields exerted downward pressure on returns for both stocks and bonds. Sectors with longer-duration assets, including technology and growth sectors, underperformed the broader market.

The S&P 500 Index recorded its most significant single-day loss in six months on Thursday, culminating in its third consecutive weekly decline. In addition to concerns about higher interest rates, market worries about the impact of the United Auto Workers' (UAW) strike and the possibility of a U.S. government shutdown may have weighed on market sentiment. Furthermore, selling pressure may have been exacerbated by investors engaging in early tax-loss harvesting as the fiscal year-end approached.

While Powell and the Fed continue to signal a willingness to raise rates further, there are several factors that could deter them. Core inflation is gradually decreasing, the labor market is displaying early signs of cooling, and consumers, who have been a pillar of the economy, are depleting their excess savings while contending with rising oil prices. Although short-term market volatility may persist, especially amid the above mentioned potential for a government shutdown and ongoing UAW strikes, my base case still is that any pullbacks in the market will align with typical corrections. Key levels I am watching on the S&P 500 are mentioned below.

S&P 500 

1-Day Timeframe

The S&P 500 has closed under the swing low we had marked to keep an eye on, and that after the lower high it put in at the beginning of September. We see clear signs of a market structure shift on the daily timeframe. The positive thing is that we are still within the key fibonacci retracement zone (above the 0.618 level) and even a pullback towards the 0.5 level ($4,155) and some consolidation down there could create a solid base to move towards the all time high later this year. Only once the 0.5 level is lost we have to reassess. No matter how bearish the macro outlook is in the long term, we need to focus on what the charts are telling us for trading decisions.

DXY 

1-Day Timeframe

DXY took the upwards road and is heading towards its 0.702 fibonacci retracement level (106.054). The pullback before the continuation was a bit shallower than I anticipated. We will have to wait and see the reaction at the key 0.702 level now. 

Weekly Schedule

United States

This week will be packed with a diverse array of economic updates, with particular attention directed toward consumer trends and the Federal Reserve's favored measure of inflation (Core PCE). In August, personal income is anticipated to have seen an uptick due to the robust labor market, although spending is expected to cool off as summer vacations conclude. The market will be closely tracking the forthcoming inflation figures. It's likely that the PCE index will rise, given the surging energy prices, while the core PCE index should maintain its steady 0.2% monthly growth.

Investors will also be closely monitoring developments such as the United Auto Workers (UAW) strike and the increasing likelihood of a government shutdown (never heard this one before 🤡). Additionally, Fed officials will be active throughout the week. On Monday, Kashkari will deliver a speech at the Wharton School. Tuesday will feature Bowman's introductory remarks at a FedCommunities event focused on rental housing affordability. Thursday will be a busy day with Chair Powell hosting a town hall meeting with educators, and speeches from Goolsbee, Cook, and Barkin. Finally, Williams will discuss monetary policy on Friday.

Eurozone

Following the September meeting of the European Central Bank (ECB), where it indicated that its tightening measures were likely coming to a halt, unless there is unforeseen negative data, this week could serve as an initial test of this stance. On Friday, flash HICP inflation data will be released, shedding light on the situation. While substantial progress has already been achieved, more is expected throughout the remainder of the year. However, a cooling economy and the looming threat of a recession are evidently causing unease among policymakers.

In the days leading up to the overall Eurozone release, several individual countries will unveil their respective inflation figures, providing some insight into what to expect on Friday. ECB president Lagarde will make an appearance on the same day as the inflation report is released.


Written by: Gunter Lackmann

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