The Wait Could Soon be Over

Since the beginning of this year, BTC had impulsive moves to the upside, leaving people not already in longs far behind, then pullbacks from the highs to just under the 50% mark, scaring late longers out of their positions, and giving bears / people who missed out on the move up hope for even lower prices, just to start the next impulsive way from right under the 50% threshold. In March it was a fair value gap in the discount zone that marked the end of the pullback, after that in June it was a bullish order block in the discount zone. This time around we see a fairly large fair value gap higher up in the discount zone (just like in March). Based on this, if the strong / impulsive uptrend in BTC is to continue, I would not be surprised to get an accelerated move down towards 27.7 - 28.2k, then the next leg up towards 34k within the next couple of weeks.

Crypto

Weekly Review

A seemingly positive development has occurred in U.S. crypto legislation, marking a decisive step forward for the country. Several bills related to cryptocurrencies have been approved, signaling a potential shift in crypto regulation.

On July 27, 2023, a bipartisan bill aimed at creating a regulatory framework for cryptocurrencies was introduced by a congressional committee. Hearings on these bills took place in the U.S. Congress, featuring members from both parties, financial experts, and regulators. After approval in Congress, the bills need to pass the Senate and be signed by the President to become law.

Traditionally, U.S. legislation requires approval from both chambers, the House of Representatives and the Senate, before being signed into law by the President. However, the response from Congress regarding cryptocurrency developments has been slow, leading to increased attention on the Securities and Exchange Commission (SEC), which has previously resorted to "regulation by enforcement" and faced criticism from the industry.

The passage of the crypto bill with a majority of 35 in favor and 15 against was a pleasantly surprising development. This bipartisan support bodes well for the bills' potential success in the House of Representatives and reflects a growing acceptance and understanding of cryptocurrencies and their potential benefits.

The legislation aims to empower individual users by providing more control over their data, transactions, and finances,  and attempts to create a new exemption from registration under the Securities Act for offers and sales of digital assets by issuers (which to be fair, all arguably weaken its chances to be fully passed).

One bill, the "Clarity for Payment Stablecoins Act of 2023" (H.R. 4766), stood out as particularly critical for the future of cryptocurrency regulation. Introduced by Chairman McHenry, this bill aims to establish a clear regulatory framework for stablecoins in payments. It seeks to provide regulatory clarity for payment stablecoins, which are digital assets with stable value that can be used for transactions. Its passage could mark a major leap forward for blockchain and cryptocurrencies in the United States. 

If enacted into law, this legislation could attract more businesses (back) and institutional capital, further solidifying the United States' position in the crypto space. While failure could lead to a new wave of fud.

BTC/USD

1-Day Timeframe

Like slightly touched upon in last week’s update, BTC price has been creeping closer to the discount area (<50%) of its current dealing range. As we can see on the chart, since the beginning of this year, we had impulsive moves to the upside, leaving people not already in longs far behind, then pullbacks from the highs to just under the 50% mark, scaring late longers out of their positions, and giving bears / people who missed out on the move up hope for even lower prices, just to start the next impulsive way from right under the 50% threshold. 

In March it was a fair value gap in the discount zone that marked the end of the pullback, after that in June it was a bullish order block in the discount zone. This time around we see a fairly large fair value gap higher up in the discount zone (just like in March). Based on this, if the strong / impulsive uptrend in BTC is to continue, I would not be surprised to get an accelerated move down towards 27.7 - 28.2k, then the next leg up towards 34k within the next couple of weeks. 

I am closely watching U.S. stock market indices for confluence. Indices have been outperforming BTC so far, i.e. despite the strength in stocks, BTC has been lacking in terms of reaching certain fibonacci retracement levels (refer to the update from Jul 24, 2023).

ETH/USD

1-Day Timeframe

Since last week ETH price seemingly has lost the struggle at the 1,867$ level. If we are just looking at a manipulation phase and will go into distribution from here, I would first want to wait for the reclaim of this level for some confirmation. If on the other hand the above mentioned ‘mini capitulation’ on BTC towards 27.7 - 28.2k takes place, we could see ETH price drop towards 1,780$ (long term trendline). If that area is lost, I would suspect that there is a chance of price going for the liquidity under the marked relative equal lows. Definitely not something I would want to see, but asset prices are drawn to liquidity, and the most noteworthy pockets of liquidity to me on the higher timeframes are currently under 1,620$ on the downside, and above 2,020 and then 2,140$ on the upside.

Legacy

Weekly Review

During the first week of August, the major U.S. stock market indices experienced a decline following a strong performance in July. The drop was driven by increasing Treasury yields and an unexpected credit rating downgrade for the U.S. government. Among the indices, the technology-heavy Nasdaq Composite recorded the most significant losses during the week.

Last week was marked by a flurry of corporate earnings releases, with investors closely monitoring results from tech giants Amazon and Apple, which announced their earnings after the market closed on Thursday. Amazon's earnings exceeded expectations, driven by robust performance in its core retail business, leading to a more than 9% surge in the company's stock at the start of trading on Friday. On the other hand, Apple's stock traded down about 3% as their earnings report showed mixed results, with strength in its services business, but disappointment in iPhone sales.

On Tuesday (August 1st), Fitch Ratings made a significant adjustment to the credit rating of U.S. government debt, downgrading it from AAA, the highest level, to AA+. The decision was attributed to concerns over governance and medium-term fiscal challenges. The (really not so surprising) downgrade came as an unexpected surprise to investors, as markets hadn't faced such news for quite some time. Consequently, some investors took the opportunity to trim riskier positions in response to the announcement. It's worth noting that S&P had previously downgraded the U.S. to a AA+ rating in 2011.

The highly anticipated monthly nonfarm payroll report from the Labor Department revealed that employers added 187,000 jobs in July (v.s. An anticipated 200,000), which is similar to the downwardly revised 185,000 jobs added in June. While the labor market remains healthy (neither too hot nor too weak), the data for the past two months indicates a slowdown compared to the first five months of the year, during which the economy added an average of 287,000 jobs per month. The unemployment rate decreased to 3.5% from the previous month's 3.6%, and wages grew by 4.4% over the 12-month period, unchanged from June. Earlier in the week, the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey showed a slight decrease in the number of job openings in June, although layoffs declined for the third consecutive month. 

In non-labor market news, the Institute for Supply Management Manufacturing Purchasing Managers' Index (PMI) was reported at 46.4, slightly lower than the consensus of 46.8, and it marked the ninth consecutive month below 50, which indicates a contraction in the manufacturing sector.

S&P 500 

1-Day Timeframe

The negative divergence on the daily timeframe has further played out and RSI closed under the 50 mark on Friday. Now that price is back under the 0.786 retracement level, first and foremost our eyes should be on the reaction at the 0.702 level. Some consolidation in the whole key retracement area of 0.618 - 0.786 fibonacci levels could be healthy, but for strength and conviction it would be preferable if the consolidation takes place between the 0.702 - 0.786 levels. Let’s watch this for a week.

DXY 

1-Day Timeframe

DXY managed to push back above its 0.618 fibonacci retracement level and has rejected at a downtrending trendline, continuing the pattern of lower highs for now. This week I will be focused on the reaction around this 0.618 fib level. If DXY finds support here and can break the descending trendline I would expect a rise towards 104 - 106 over the next few weeks. Lose the 0.618 level again, and the descent towards 99.21 is likely to begin. 

Weekly Schedule

U.S.

This week all eyes will be on the US inflation reports. Favorable data could reinforce hopes for a soft landing and convince some that the Fed has finished raising interest rates. Forecasts for the July inflation report indicate that headline inflation is expected to increase slightly, while core inflation is projected to remain stable, holding at its lowest levels since 2021, with a monthly increase of 0.2% and a year-on-year rise of 4.8%. Surprising high inflation figures may strengthen the case for the Fed to consider raising rates in the September or November meeting.

Thursday's focus will be on the inflation report and initial jobless claims. On Friday, the PPI report and the preliminary University of Michigan Sentiment report, including inflation expectations, will be released.

Federal Reserve officials including Bostic and Bowman on Monday, Harker on Tuesday, and Bostic's remarks on employment on Thursday, will also contribute to the discussions.

During the week, earnings reports are expected from notable companies such as Alibaba Group Holding, Allianz, Bayer, Berkshire Hathaway, China Telecom,Honda Motor, Palantir Technologies, Saudi Arabian Oil, Siemens, SoftBank Group, United Parcel Service (UPS), and Walt Disney.

Eurozone

While there are no high impact data releases anticipated in the Eurozone, early this week we will get the release of both the Eurozone Investor Sentiment and German Industrial Production reports. The August Sentix Eurozone sentiment reading is anticipated to show a further decline in confidence, dropping from -22.5 to -23.4. Additionally, the June German industrial production data is expected to reveal a negative trend, with a projected monthly decline of -0.5% (consensus), worse than the previous -0.2%. The weakening data points are likely to support the expectation that inflation will slow down significantly later in the year, which could signal an end to the ECB’s hiking spree.

Written by: Gunter Lackmann

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