Strong Economy + Strong Stock Market = Weak Bitcoin?
Market sentiment seemed to receive a positive boost from a series of mostly favorable economic indicators, particularly related to inflation. On Friday, stocks opened with significant gains after news broke that the core (excluding food and energy) personal consumption expenditures (PCE) price index, which is the Fed's preferred inflation gauge, had risen (only) 0.2% in June, down from 0.3% in May. This resulted in a year-over-year increase of 4.1%, slightly lower than expected, and the slowest growth since September 2021. Additionally, the employment cost index, closely monitored due to concerns about wage inflation among policymakers, rose 1.0% in the second quarter, also falling below consensus and marking the smallest increase in two years. But unlike the strength in the stock market, Bitcoin remained weak.
Monday last week Bitcoin price dropped and closed under the long standing consolidation range. No daily candle managed to close back above the 29,452$ mark we have had our eyes on for a while. If price closes back above that level and continues upwards toward the range highs, chances that we are currently looking at the liquidity grab that we were anticipating increase. The longer the price keeps rejecting at the 29,452$ level, the higher the potential of a further, deeper pullback. Consolidation under resistance can be bullish in strong uptrends, but over the last 40, especially the last 16 or so days strength in BTC has come to a halt, and rejection at a resistance that has newly formed after losing a key level, is not bullish. If you are already exposed to longs, in the case of a hard rejection here, anything below 27.5k could be considered for (addon) longing (with a plan), anything higher than 28.3k would still be considered a premium pricing.
The way to avoid a deeper pullback from here is to break back above 29,452$ and see acceleration towards the previous range high, similar to the liquidity grab on June 14 - 15 before continuation to the upside. Until then, caution is warranted
Ethereum price is still hovering around the 1,867$ mark. Not much to update. The weakness in the uptrend mentioned last week started showing more. If we get a strong (market wide) correction, I would be interested in taking a jab at a long at around 1,740$, invalidation at 1,622$ and a target of 2,000$.
Sentiment seemed to receive a positive boost from a series of mostly favorable economic indicators, particularly related to inflation. On Friday, stocks opened with significant gains after news broke that the core (excluding food and energy) personal consumption expenditures (PCE) price index, which is the Fed's preferred inflation gauge, had risen (only) 0.2% in June, down from 0.3% in May. This resulted in a year-over-year increase of 4.1%, slightly lower than expected, and the slowest growth since September 2021. Additionally, the employment cost index, closely monitored due to concerns about wage inflation among policymakers, rose 1.0% in the second quarter, also falling below consensus and marking the smallest increase in two years.
Furthermore, last week’s data suggested that the economy might actually experience a soft landing and avoid a recession even as borrowing costs rose. (I am personally still skeptical, but from a data standpoint I have to consider the possibility.) The Commerce Department reported on Wednesday that the economy had expanded at a year-over-year pace of 2.4% in the quarter, surpassing both the previous quarter's growth rate of 2.0% and consensus expectations of around 1.8%. Both businesses and consumers appeared to be in good financial shape, spending freely. Durable goods orders increased by 4.7% in June, and personal spending rose by 0.5%. Additionally, pending home sales unexpectedly rose.
After its two-day policy meeting, the Fed announced a 25bps increase in the federal funds target rate on Wednesday, as was widely expected.
There was growing anticipation that the Fed had finished raising rates, at least for the remainder of the year. Fed Chair Jerome Powell acknowledged in his post-meeting press conference that the current "restrictive" monetary policy was exerting downward pressure on economic growth and inflation. However, he emphasized that any further adjustments to interest rates would be guided by incoming data (as usual). According to the CME FedWatch Tool, at the time of writing, futures markets are pricing in only a 20.5% chance of another rate hike in September, but that will likely change the closer we get.
The strength in the stock market continues. The S&P 500 continues to hold above its 0.786 fib retracement level. As long as this is the case, I remain bullish. Although another negative divergence on the daily timeframe RSI is developing. Getting a light pullback that will ‘cool off’ the RSI towards 50 - 40 would be welcome. The levels above us to pay attention now are 4,630 and 4,743. After that a new ATH is just just a cat's jump away. On the downside, major support under the 0.786 fib level should be the 0.702 fibs coming in at 4,423. In order to keep the bullishness at max level, this potential support should not be breached for too long.
DXY has continued its retrace back to the 0.618 fibonacci level last week. A rejection here would likely be followed by a retrace to the 97.7 - 99.21 area. If it breaks above the 0.618 fibs, the first potential rejection level to watch is 103.578. Notice that while the chart is showing lower highs and lower lows, the RSI has been ranging mostly flat. Once the 50 level breaks on that we could see some serious acceleration on DXY to the upside.
As inflation steadily cools, it appears that the Fed's historic tightening campaign may soon come to an end. The focus of investors will now shift to not only inflation but also economic activity.
This week will be filled with various economic readings. On Monday, two Fed regional surveys will be released. The MNI Chicago PMI is expected to show a slight improvement, while the Dallas Fed manufacturing activity report is likely to remain deeply in negative territory.
Wednesday will see the release of the ADP employment change, which is anticipated to show a slowdown in hiring from the previous 497,000 pace to 188,000 - 210,000.
Friday will focus on the July nonfarm payroll report, which should indicate a decrease in hiring from 209,000 to around 190,000 - 200,000. The unemployment rate is expected to remain steady at 3.6%, while average hourly earnings on a monthly basis are predicted to tick lower to a 0.3% pace.
This week will also bring earnings updates from various companies, including Caterpillar, Pfizer, Uber, Yum Brands, Apple, and Amazon.
This week in the Eurozone will kick off with the release of eurozone flash HICP data shortly after the European open. The report is expected to show further progress, although more significant movements are not anticipated until September. However, favorable base effects and lower energy prices should continue to drive inflation lower in the coming months, which will ease pressure on the ECB to implement another rate hike in September.
Written by: Gunter Lackmann
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