Macro Monday: Adrenaline Increase

Crypto

Last week, EDX Markets, a new digital asset marketplace supported by major Wall Street firms including Charles Schwab, Citadel Securities, and Fidelity Digital Assets, began trading. Despite ongoing regulatory challenges, Wall Street's interest in cryptocurrencies is there (good market to drain retail liquidity). EDX Markets offers spot trading in Bitcoin (BTC), Ether (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). Unlike other exchanges, EDX Markets adopts a "non-custodial" model where it does not directly hold its clients' assets. Instead, it serves as a platform for participating firms to agree on trade pricing and execution. Funds are transferred between the parties to complete transactions. EDX plans to introduce a clearinghouse later this year to further streamline trade settlement. However, the company will continue to utilize third-party banks and a digital asset custodian to safeguard customer assets. This differs from typical crypto exchanges that require customers to store their assets in wallets controlled by the exchange, posing potential risks of fund loss or misuse (just as may be the case with legacy banks…). While regulatory pressure on crypto companies in the U.S. has been increasing, Wall Street giants do show some interest in the industry. This raises questions about whether the challenges are mere political theater.

In Europe, Deutsche Bank, the largest bank in Germany in terms of total assets, has applied to the BaFin (Federal Financial Supervisory Authority) for regulatory approval to offer custodial services for digital assets like cryptocurrencies. This strategic move signified Deutsche Bank's intention to expand its presence in the crypto industry. By obtaining a license from BaFin, companies can legally provide and promote their crypto services in Germany. According to Bloomberg, David Lynne, the head of Deutsche Bank's corporate banking division, stated that the financial institution aims to boost fee income in this venture, leveraging its $1.4 trillion in managed assets. This initiative follows the efforts of Deutsche Bank's asset management arm, DWS, which partnered with Galaxy Digital in April to develop exchange-traded crypto products.

Once BaFin approves Deutsche Bank's application, it is expected to signify a significant milestone in institutional crypto adoption.

Let's see how the charts are doing.

BTC/USD

1-Day Timeframe

Liquidity to the upside was indeed targeted like expected in last week’s update. However the push higher was much more aggressive than anticipated. Liquidity (short stops) was tapped above the previous high of 31,046.25$, and has flashed a potential change in medium term market structure. If 30k offers support, we are likely to consolidate around here for a while before then going for another liquidity run in either direction. I will have to see some more development on the chart before taking an educated guess in which directions this will be. Overall I lean towards the upside towards 35 - 38k over the medium term, but that does not mean that levels below us, like 28.5k or the previous consolidation range breakout area of 27.6k cannot be revisited first. For now I am keeping my eyes on 31,050$ resistance and 30k support. I will also keep an eye out for a negative divergence forming on the RSI as it is overextended.

ETH/USD

1-Day Timeframe

The expected liquidity run lower did not happen and ETH price managed to push back higher into the price channel. While the move up is far less impressive than BTC, ETH is holding support above 1,867$ for about a week now. If price starts moving back above 1,940$ in a sustained manner (not just wicks) I can see the liquidity (short stops) above 2,034$ and even 2,132$ getting tapped. But I still am of the opinion that the liquidity pool under the marked relative equal lows (approx. 1,620$) as well as the long term support trendline will need to get tapped in due course before any potential bigger move to the upside. This week my eye will be on the 1,867$ support, and approx. 1,940 - 1,950$ trendline resistance.

Legacy

As we reach the midpoint of 2023, several trends are worth noting:

Firstly, and fairly, the markets have displayed remarkable resilience overall. The S&P 500 has shown a year-to-date increase of over 14%, although this growth has primarily been driven by a few sectors and large-cap technology stocks, supported by investor enthusiasm for the emerging artificial intelligence (AI) sector. However, there are signs of increased participation with small-cap stocks and certain cyclical sectors like industrials and materials starting to rebound.

Secondly, the Federal Reserve (Fed), along with central banks worldwide, appears to be continuing their rate-hiking cycles. The Fed has suggested the likelihood of up to two more rate hikes, although a longer pause may be on the horizon for the latter half of the year.

Thirdly, the U.S. economy continues to defy predictions of a recession, with the Fed's GDP-Now tracker projecting a growth rate of around 2.0% for the second quarter.

However, the lag effects of the Fed's tightening measures may be catching up with the economy, and this cycle is expected to be distinctive. We might witness more of a rolling recession, with some sectors heading into a downturn while others stabilize and rebound. Overall, this could result in U.S. economic growth falling below the trend down the line, possibly below 1.0%, but without the traditional two or more consecutive quarters of negative growth. As economic growth cools, inflation is also anticipated to decline in the coming months. Forward-looking indicators, such as the ISM prices paid indexes, supply chain pressures, and used car prices, all show a downward trend. The Fed would prefer to see wage growth moderate and services prices ease, providing relief to core inflation. However, this may become challenging as we enter the summer travel season, where demand for leisure and hospitality services remains high. Nonetheless, with high interest rates, stringent lending standards, and a potentially cooling economy, it is likely that inflation will trend lower towards the end of the year.

S&P 500 

1-Day Timeframe

Initial rejection at the 0.702 fibonacci retracement level was expected, also giving RSI room to cool off for the next push higher. I still see price running towards the 0.786 fibs, maybe even going for the liquidity lying above 4,637$. What I will mainly be eyeing is any potential negative divergence on the RSI, ideally making a lower high at or below its 70 level. If price makes equal or a higher high at that point, it could be time to consider starting to scale into a short position.

DXY 

1-Day Timeframe

Nothing much to comment on the DXY chart this week. Key support (0.618 fibs) continues to hold and we will need another week or three to see if we will see a new lower low and the potential continuation of the downtrend, or if the value has caught its footing here at the channel EQ and is going to push back above 104.75 making a higher high and potential start for a change in market structure.

Weekly Schedule

U.S.

While Europe faces a high risk of recession as traders speculate on aggressive rate increases by European central banks, the Fed is anticipated to be approaching the end of its own rate hike campaign. The focus in the United States will shift to the PCE readings. If inflation decreases as predicted, the market may gain more confidence in the likelihood of the Fed delivering only one more rate hike. Consumer confidence readings are expected to show a slight recovery, and will also be closely monitored by the market. Additionally, the Personal Income and Spending data on Friday will also be closely watched as incomes continue to rise while spending slows down.

On Sunday, Fed's Williams will speak at the Bank for International Settlements. Fed Chair Powell will travel to Europe and deliver a speech at the ECB's global banking forum in Portugal. The Fed will also announce the results of their annual banking stress tests.

Eurozone

ECB President Christine Lagarde's appearances early in the week will receive significant attention, especially considering the ongoing trend of central banks raising interest rates amid persistent inflation. However, investors will be most interested in the flash YoY inflation data on Friday. The ECB recently cautioned that substantial improvement in the data is necessary to avoid another rate hike next month, and a repeat of the May report could potentially meet that requirement. By the end of the week we should get an idea if the ECB is likely to raise rates again in July before reassessing the situation in September. Inflation data from individual countries earlier in the week might provide some insight into what can be expected on Friday.

Written by: Gunter Lackmann