An important week for global markets is coming to an end with the US central bank’s decision to raise the cost of money for the 3rd consecutive time.
One must go back 14 years to the year 2008, when Lehman Brothers went bankrupt and triggered the great economic crisis, to see interest rates in the United States between 3% and 3.25%.
With the Fed‘s latest increase yesterday of 0.75%, as widely predicted by analysts and also reported in recent days here on The Cryptonomist, since yesterday it costs even more money in the US to get a loan.
The decision to raise interest rates for the 3rd consecutive time is being made to deal a new blow to inflation and prevent a slowdown in the economy.
This is the most intense bullish pace in 40 years
During yesterday’s press conference, Fed Chairman Jerome Powell said he does not know what the chances of a recession are and there are no other painless alternatives in order to leave behind inflation at record levels of the past 4 decades:
“We have got to get inflation behind us.
I wish there were a painless way to do that…. There isn’t.”
The latest economic signs are not encouraging. The US GDP will rise by a paltry 0.2% this year, while until a few weeks ago the forecast was for 1.7% growth.
Yesterday’s will not be the last increase in the cost of money. Currently analysts’ expectations are for a rate hike cycle between 4.50% and 4.75%.
For the rate decline, forecasts look to the second half of 2023.
The decision is having an impact on financial markets with major financial indexes falling for the second consecutive week. The S&P’s main stock index, which lists the top 500 largest-capitalization US companies, falls more than 3.5% since Monday’s opening and falls back below 3,800 going back to the lows of June, as well as of the year, burning off the rebound it had made over the summer.
Similar trends also for the other two benchmark indices, the Dow Jones and the tech Nasdaq, that end in the red the fifth week of the last six calculated since the mid-August octave.
The reaction of gold was tentative, which despite rebound attempts that alternated up&down days, ends the week losing more than half a percentage point returning to last week’s lows in the $1,650/oz area, the lowest level since April 2020.
The most resounding news, and the one that is also having a greater impact on the crypto markets, is the strengthening of the US dollar, impacting the exchange rate with the old continent’s euro currency, which plummets to its lowest level in 20 years in the 0.97 euro per dollar area.
The euro-dollar exchange rate has not registered these levels since October 2002.
In early May, the EUR/USD exchange rate was traveling in the 1.22 area. A loss for the European currency of more than 20% in just four months.
Bitcoin (BTC) – Technical Analysis
After yesterday’s reaction, today’s day turns red again, bringing the weekly and monthly balance back into the negative.
If current levels are confirmed, or worsen, over the weekend, this would be the second consecutive downward week.
The current technical structure has reversed the assumptions favorable to a new upward monthly cycle. In fact, the reversal of prices that began after reaching the top at $22,790 on 13 September has erased all previously accumulated gains, taking the same amount of time both up and down.
In fact, from the lows of 7 September at $18,550, the rise took 13 days to reach the period peak on 13 September, and then returned to $18,260 USD on 19 September, taking a few hours less time since the rise.
It becomes crucial, not only over the weekend but also for the next few days, not to cross the $18,500 floor on the downside and not to risk triggering a speculative race to the downside to update the year’s lows set on 18 June when the BTC price reached the $17,600 mark.
Ethereum (ETH) – Technical Analysis
The break of the $1,450 support accompanied prices to revisit the $1,200 area, as predicted in previous analyses on these pages.
The holding of the support was defended with bull buying causing prices to rebound back to above $1,350 in the last few hours undoing the plunge of Wednesday, 21 September, the day of the Fed’s interest rate hike.
Failure to recover $1,400 by Sunday’s close will negatively impact ETH‘s weekly close for the second consecutive time.
Under current conditions, there does not seem to be a basis for recovering all the loss since early September, which at the time of writing is down over 15%, the worst monthly performance in the current quarter.
Under current technical conditions, two different scenarios coexist.
For the short term, weakness prevails in line with the closing of the quarterly cycle. While for the medium to long term, the quarterly cycle that began with the double low between June and July is in the neutral phase.
It becomes necessary not to fall below the $1,150 area in the coming days, which coincides with 75% of the Fibonacci retracement calculated from the lows and highs of the last three months.