The Market Pushes Snooze Again

Bitcoin has mainly remained flat since last week with only little ups and downs. With the push up on last week Tuesday hopes for an AMD pattern playing out were kindled briefly, but price has since dropped back under 29.5k$. For now the consolidation continues and a dip under the 50% fib retracement level (28 - 28.3k$) mentioned last week is as likely as a sudden start of an expansion to the upside (towards and beyond 31.8k$). On the daily timeframe there currently is not much we can do but wait for the market to pick a direction.

Crypto

Weekly Review

For close to three years, the SEC has maintained that Ripple Labs violated securities regulations by offering an unregistered security to US customers through the public sale of the XRP cryptocurrency. This disagreement has sparked an ongoing legal clash between the two parties. However, in a recent court ruling about a month ago, US District Judge Torres determined that the public sale of the XRP token adhered to federal securities laws. Only sales to institutional entities were deemed to have involved an unregistered security offering. This decision was perceived as a significant partial victory by Ripple Labs and other cryptocurrency projects entangled in SEC litigation, prompting celebrations within their respective communities. Nevertheless, the SEC is not accepting this as a defeat. During the past week, the agency lodged an appeal, indicating its intention to seek a review of the decision by a federal appeals court. This review by a higher court is expected to address legal matters that have raised substantial disagreements. Consequently, the outcome of the pivotal legal battle between Ripple and the SEC may still require several months to become clear.

We are also seeing some significant moves in the realm of stablecoins. In recent years stablecoins have firmly established themselves as foundational pillars within the cryptocurrency ecosystem, posing alternative safe haven assets to Bitcoin within the market. These digital assets, often tethered to the US dollar, serve as a digital substitute for traditional fiat currencies, effectively bridging the gap between the world of cryptocurrencies and conventional finance. This technology holds a strong appeal for fintech companies as well. Payment services can leverage stablecoins to facilitate swift cross-border transactions with minimal volatility, offering unparalleled transparency and security. One significant player in the payment industry, PayPal, is actively pursuing this vision through its proprietary PayPal USD (PYUSD, horrible abbreviation) stablecoin, aiming to unlock the potential of stablecoins within the digital transaction sphere. Operating on the public Ethereum blockchain, PYUSD is backed by deposits in US dollars, short-term US Treasury bonds, and similar cash equivalents.

A year ago, Binance, a globally leading cryptocurrency exchange, initiated a successful marketing campaign involving its own stablecoin to attract traders to its platform. It waived any fees for Bitcoin and Ether spot trading as long as traders utilized the Binance USD (BUSD) stablecoin. This campaign not only expanded the exchange's trading volume lead but also established its stablecoin as one of the top three. However, regulatory pressures from US authorities compelled the issuer of BUSD, Paxos (also the issuer of PYUSD), to suspend issuance of the stablecoin in February 2023. Subsequently, Binance discontinued the BUSD campaign and introduced fee-free trading for TrueUSD (TUSD). Despite having a market capitalization of under $3 billion USD, TUSD presented a somewhat uncertain alternative to the dominant market players, USDT ($83 billion USD) and USDC ($26 billion USD). Remarkably, just one week ago, the same promotional campaign was extended to the recently launched First Digital USD (FDUSD), which currently has a market capitalization of only $260 million USD. This development has led skeptics to raise questions about Binance's affiliations with both stablecoin issuers.

BTC/USD

1-Day Timeframe

Bitcoin has mainly remained flat since last week with only little ups and downs. With the push up on last week Tuesday hopes for an AMD pattern playing out were kindled briefly, but price has since dropped back under 29.5k$. For now the consolidation continues and a dip under the 50% fib retracement level (28 - 28.3k$) mentioned last week is as likely as a sudden start of an expansion to the upside (towards and beyond 31.8k$). On the daily timeframe there currently is not much we can do but wait for the market to pick a direction.

ETH/USD

1-Day Timeframe

Similarly to BTC, ETH price has also not given us any significant moves to work with. There wasn’t even a celebration candle when it was announced that PYUSD is going to utilize the Ethereum blockchain, underscoring that the market is largely waiting for BTC to pick a direction. 

The current weakness in ETH becomes apparent in the fact that daily candles have not been able to close above the 1,867$ for over ten days now. Immediate trendline support under us is now at the 1,800$ mark and the first hurdle to overcome to the upside stands at the 1,867$ level.

Legacy

Weekly Review

Following an impressive surge at the beginning of the year, markets have experienced a minor retreat in August. The S&P 500, for instance, has seen a decline of approximately 3% since its recent peak on July 31. Beneath the surface, however, the Nasdaq has undergone a more substantial decrease of over 4.0% during this period, and the "Magnificent 7" large-cap stocks have faced a decline of over 5.0%. It appears that the sectors that were driving the upward momentum are now taking a pause, a trend we perceive as a positive development, allowing investors to digest the significant gains.

In our assessment, a degree of caution seems wise following the nearly 18% surge in the S&P 500 and the impressive 30% ascent in the Nasdaq from March to July*. As we move into August and September, historically more volatile months, it's conceivable that we might witness a conventional correction ranging between 5% and 10% in the markets. Possibly even low double-digits on the Nasdaq.

Financial stocks experienced a brief sell-off on Tuesday morning subsequent to Moody’s Investors Service downgrading credit ratings for 10 small- and mid-cap banks and placing six other entities under downgrade watch. This move by Moody's was attributed to funding costs and the banks’ exposure to the distressed commercial real estate sector. Although shares in this sector regained some ground as the week progressed, the initial impact was notable.

Thursday saw stocks rallying at the opening bell due to news that the Labor Department’s consumer price index (CPI) had risen by 0.2% in July, resulting in a year-over-year increase of 3.2%, just slightly below expectations. However, the enthusiasm surrounding the CPI data seemed to diminish throughout the day, leading to mixed stock performance on Friday. This followed reports that producer prices had increased by 0.3% in the month, slightly surpassing expectations. Looking at the year-over-year figures, producer prices saw an increase of 0.8%, which falls notably short of the Federal Reserve’s target of 2% for overall consumer inflation. Interestingly, July marked the first annual rise in the rate of producer price inflation in over a year.

The past week also introduced a somewhat divergent inflation outlook from various Fed officials. While Fed Governor Bowman cautioned that additional rate hikes might be necessary, New York Fed President Williams suggested that rate hikes were approaching their conclusion, with the possibility of rate cuts emerging as early as 2024. Philadelphia Fed President Harker indicated his comfort with maintaining steady rates for the time being, and Richmond Fed President Barkin expressed support for a pause in the current hiking cycle. All in all a statement would probably be something along the lines of “we will see what future data says”, as always.

S&P 500 

1-Day Timeframe

The initial push up on Thursday last week ended in a rejection at the 0.786 fib level and the S&P 500 is still on its way to likely retest the 0.702 fib level. A correction and consolidation after the stellar performance since early this year would definitely not be odd. Worries would only start if the index drops back under the 0.5 fib level (4,155), anything in the range until there is fair game in my opinion. 

DXY 

1-Day Timeframe

DXY has started to look bullish, recovering from the dip towards 99.6 swiftly, and breaking trendline resistance last week. I would not be surprised if we see retests of the 104.6 - 106 levels, or even the 108.5 - 109.45 area. 

The Week Ahead

U.S.

With the market displaying high confidence (88.5% according to CME FedWatch Tool) that the Federal Reserve won't raise rates in September, the attention shifts towards evaluating the strength of the economy. The central concern is whether the economy's robustness might become excessive and possibly trigger concerns about a resurgence of inflation.

The economic calendar commences on Tuesday with the release of the July retail sales report, expected to reveal an increase in spending compared to the previous month. Additionally, Tuesday will feature the Empire State manufacturing survey report, projecting continued weakness in August activity, and the release of July's import price index. The latter should indicate a notable recovery, albeit following a consistent decline since the summer months. 

Moving to Wednesday, housing data is anticipated to demonstrate a rebound in both housing starts and building permits for July, accompanied by improved industrial production figures. Wednesday will also see the release of the FOMC minutes from the July meeting. However, this may not significantly impact the market, given the prevailing confidence in the Fed's rate stance. 

Thursday's focus will be on jobless claims, assessing whether the labor market's cooling trend persists, and monitoring the outlook of the Philadelphia Fed manufacturing survey.

In terms of speeches, on Tuesday, Fed's Kashkari will be at the Philadelphia Business Journal's State of the Economy in Philadelphia. His previous remarks, a month ago, emphasized the possibility of the Fed raising rates further in response to entrenched inflation.

Earnings for the week will include Home Depot, Target, Cisco, Walmart, and Applied Materials.

Eurozone

The upcoming week is marked by a number of economic releases, yet none of them stand out as potential high-impact on the markets, except the final HICP inflation numbers on Friday, if heavily revised. However, historical patterns suggest that these figures generally align closely with expectations, which is why they aren't considered top-tier indicators. Additionally, GDP and employment data are set to be released on Wednesday.

Written by: Gunter Lackmann

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