Crypto Left Out?

The breakout attempt last week ultimately failed and price is now back in the consolidation range, with imminent support at 26.7k and resistance at 27.6k.

Crypto

BTC/USD

1-Day Timeframe

The breakout attempt last week ultimately failed and price is now back in the consolidation range, with imminent support at 26.7k and resistance at 27.6k. 

If the 26.7k support breaks, we could see another test of the lows and around 25.8k and below towards 25 - 25.6k.

If the trendline resistance, and more importantly the horizontal level of 27.6k can be broken the area we would need to see support established in for a healthy continuation upwards is 28 - 28.5k and an RSI break above 50.

It may feel a tad frustrating to see BTC count in its place while stock market indices are breaking to the upside. My expectation is that either BTC will catch up with indices (unless there is regulatory fud), or the current breakouts will all fail, and we will see a wider market correction. I present some arguments for this in the ‘Legacy’ section below. But for now I am focused on the above mentioned levels for BTC. 

ETH/USD

1-Day Timeframe

ETH if holding the 1,867$ horizontal level and the 50 level on RSI, arguably with a light negative divergence. Bitcoins next move will be the decision maker for ETH. A move towards 28 - 28.5k for BTC would ideally give ETH enough fuel to run towards 1,966 - 2,034$ which is an area to consider for shorts until it’s flipped to support. Targets for shorts in that area would be 1,800$ and 1,736$.

Legacy

The recent headlines about the debt ceiling have benefited stocks (crypto not as much unfortunately) due to the draining of the Treasury General Account (TGA) and the flight to safety into large-cap stocks. However, now that an agreement has been reached to increase the debt ceiling, the dynamics are expected to reverse, potentially leading to a sell-off in the market.

The TGA has been depleted by reduced debt issuance, which has freed up reserve balances and supported the market. But as the debt ceiling is raised and new debt is issued, the TGA is likely to increase substantially.

As the TGA rises and reserve balances decrease, there is a potential for liquidity to be drained from the market. Historical data suggests a relationship between the TGA and the S&P 500, indicating that as the TGA rises again and reserve balances fall, the S&P 500 could reverse its trend and move lower. The increase in the TGA represents a liability for the Federal Reserve, leading to a decline in reserve balances. This reduction in reserves can result in lower margin levels in the market. When margin levels fall, liquidity is withdrawn, triggering a de-leveraging process that can contribute to market downturns. We should be aware of this possibility, but there are also bullish counter arguments, and personally I still expect the S&P 500 to reach at least its 0.702 - 0.786 fibonacci retracement levels eventually.

Investors have been gravitating towards mega-cap stocks, driven by their strong balance sheets, large market capitalizations, significant cash flows, and earnings potential coupled with the AI buzz. If the unwind of the TGA leads to increased debt issuance and a subsequent rise in the TGA, it could potentially drain liquidity from the market and in combination with the rotation out of mega-cap stocks could turn the whole debt ceiling agreement into a "sell-the-news" event.

S&P 500 

1-Day Timeframe

The S&P 500 has broken the 4,200$ level which had been widely touted by bears and is now moving towards its key retracement area as expected. Any potential pullback from the 0.618 fibonacci retracement level should be temporary, and my expectation of a push higher towards the 0.702 - 0.786 levels before a potential deeper correction has not changed. There are as many bulls as bears out there shouting at the top of their lungs. It’s all noise. From a statistical perspective, the key fibonacci retracement levels should be treated as resistance, until a sustained break above the 0.786 level. If price, for example, were to break up above 4,640$ and from there give the 0.786 a bullish retest, it’s time to look for longs. Until then I favor the 0.702 - 0.786 area for shorts.

DXY 

1-Day Timeframe


DXY has broken and successfully completed its first bullish retest of the 103.67 level. We will now have to patiently wait and see whether this whole move will end up as a lower high, and DXY will move back down towards its 0.618 fibonacci retracement level, or if it will bounce towards the 0.702 fibonacci retracement level and go for either a double top, which would be bearish for the dollar over the medium term, or go on to make a higher high, which would be a first sign of a potential push higher later this year. 

Weekly Schedule

U.S.

On Monday, the US Federal government will have enough funds to meet its financial obligations, ensuring that bills can be paid. With the conclusion of the debt ceiling concerns, attention now turns to assessing the resilience of the economy and whether the disinflationary process will resume.

The economic data for the upcoming week will primarily focus on three areas: the service sector, trade deficit, and jobless claims. It is anticipated that the ISM services index will indicate an improvement in service sector activity, rising from 51.9 to 52.4. Trade data is expected to reveal a widening deficit. At some point, there is expected to be a surge in jobless claims, which would alleviate wage pressures and provide support for the argument that disinflationary trends are firmly established, although with that surge, historically speaking a potential correction in the stock market inches closer. So while it may seem like “good news” initially, caution will be warranted. 

Eurozone

The upcoming week presents a substantial amount of economic data, although it is not expected to have a significant impact on the European Central Bank (ECB)’s hike decision. The speeches and statements from ECB officials leading up to the next meeting on June 15 may be more noteworthy, as there is a possibility of a final rate hike at that time. While the inflation data for May exceeded expectations, the following months might not fare as well due to less favorable base effects.





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