Market News from FxPro

Nasdaq, S&P 500 test key support

Alex Kuptsikevich, a senior analyst from FxPro reported that the major US indices are under pressure amid the ongoing reassessment of the Fed’s monetary policy outlook. The S&P500 and Nasdaq100 indices are testing key technical support again, returning to the crossroads they left over a month ago.
Nasdaq100 futures fell to 11850 this morning, a more than one-month low, giving the bears back half of the gains from the lows in early January to the peak a month ago. More remarkably, the index has been testing support at the 200-day moving average since Wednesday evening and is below it at the time of writing.

Today’s drop is below the 61.8% retracement level of the January rally from 10700 to 12700. This means that the market’s momentum today and tomorrow could be the index’s decisive momentum.
This morning’s decline has stopped at a distance from the 50-day moving average, which often acts as a trend indicator. A consolidation below these two critical curves would signal that the market is ready to move lower.
In that case, January’s rally would fit into a typical corrective pullback from the global highs of November 2021 to the lows of October 2022. A return to 10700 is a matter of “when”, not “if”.
However, the outlook for the market is by no means a foregone conclusion. There is still a chance that the 50-day moving average will hold and the 200-day moving average, the so-called “golden cross”, will be broken in the first half of March. That will be a bullish signal for a wide range of players and doubly true if the price is above that cross.

Also bullish is the fact that the RSI on the daily chart is out of the overbought zone. In other words, the correction that was called for in early January is already complete.
The S&P 500 Index slipped below its 50-day MA and under 4000 a week ago and is now testing its 200-day MA. Consolidation below 3900 could be the prologue to an extended, month-long decline with potential targets near 3800 (December support) or 3700 (200-week average).
Alternatively (less likely), a return to growth from current levels would consolidate a bullish global reversal in the US equity market and take the S&P500 to 4200 before the end of March.
Anchoring inflation in Europe

Alex Kuptsikevich, a senior analyst from FxPro reported that although commodity and energy prices have retreated from their highs and supply chains have recovered over the past year, inflation remains a problem. This thesis was confirmed today for the eurozone. Eurostat estimated overall price growth in the Euro region at 8.5% y/y. This is a step down from 8.6% a month earlier and a peak of 10.6% in October, but economists, on average, expected to see a slowdown to 8.3%.
Even more attention should be paid to the continued growth of core CPI, from which energy and food are excluded. Its annual growth rate accelerated to 5.6% against expectations of a 5.3% deceleration. This acceleration represents a much bigger problem than the jump in energy prices. For the last 17 months, it has been above the 2% target. At the same time, the Euro-region's unemployment rate of 6.7% is very low. This combination dramatically increases the risks of stalling inflation expectations.
The only way for the central bank to tackle them is to rein in the economy by pushing it towards contraction to reduce the domestic pressure on prices. If the ECB is serious about fighting inflation, it must act sharper and longer in raising rates and quantitative tightening. That sounds like good news for the euro, but traders should be aware that markets are quite prepared for the current publication from earlier in the week when individual country data was released. In addition, the historically positive correlation between EURUSD and stock indices should be noticed: declines in equity indices are weighing on the pair today.
Death Cross continues to hang over Bitcoin

Market Picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin fell 5.2% last week to close at $22,400. Ethereum lost 4.4% to $1570. Other leading altcoins in the top 10 fell between 2.9% (XRP) and 11.5% (Polygon).
The total capitalisation of the crypto market fell 5% over the week to $1.03 trillion, according to CoinMarketCap.
Bitcoin's most significant drop last week came on Friday amid reports of the possible bankruptcy of Silvergate, a bank that services major cryptocurrency companies. The bank announced the closure of its cryptocurrency payment service.
While BTCUSD has held up during furious sellers' attacks, it is in no hurry to bounce back from the bottom. Technically, the 50-week moving average continues to act as a valid resistance from which the selling intensifies. The Death Cross formed on the weekly timeframe makes for a cautious view of the near-term outlook and keeps the potential for a return to the $16.3-18.0 level.

News Background
According to media reports, global giant market-maker Citadel Securities plans to increase its stake in Silvergate Bank to help it out of its liquidity crisis. Other rumours suggest that Wells Fargo is a potential buyer.
SEC chief Gary Gensler has warned cryptocurrency exchanges against failing to comply with custodian status. He said that if an exchange collapses, "customer funds often become the property of the bankrupt entity".
Brad Garlinghouse, CEO of Ripple, said that more and more cryptocurrency and fintech companies are leaving the US, which is stifling innovation in the country. Around 300 payment providers from 45 countries believe blockchain and cryptocurrencies can improve traditional finance, according to a survey conducted by Ripple.
The UK's Nationwide Building Society and HSBC have imposed restrictions on card purchases of cryptocurrencies.
Crypto market hesitant to grow
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that the price of bitcoin and the capitalisation of the entire crypto market have fluctuated in a very narrow range since the second half of Friday, with the centre of gravity around $22.3K and $1.03T, respectively.
For Bitcoin, however, things are looking a little more positive. A closer inspection reveals a slight upward bias in these calm waters. There is some upward tilt after last week's notable drop, which resembles Whale's style. At the same time, there is not enough positive news in the background for prices to rise.
The technical picture in the larger timeframes is also bearish so far, as BTCUSD has dropped below its 50-day moving average in a strong move and is making no attempt to climb higher while remaining below its 50- and 200-week MAs.
Ethereum's daily chart shows a similar pattern with moves between the 50- and 200-day MAs, but with the digital silver mainly trading between $1530 and $1670 for the eighth week in a row.

News Background

According to CoinShares, investments in crypto funds fell by $17 million last week, the fourth consecutive week of outflows— investments in Bitcoin funds fell $20 million, while Ethereum rose by $0.7 million. Investments in funds that allow shorting bitcoin increased by $2 million.
US cryptocurrency exchange Kraken confirmed its intention to open its bank, despite a challenging regulatory environment and demands from regulators.
BCB Group announced its intention to fill the void left by the closure of Silvergate Exchange Network (SEN) by allowing crypto market participants to conduct unrestricted transactions in US dollars.
Investment in DeFi projects increased by 190% to $2.71 billion in 2022, according to CoinGecko. Investor interest in CeFi fell almost fourfold year-on-year to $4.39bn.
Silver tries to confirm the turnaround

Alex Kuptsikevich, a senior analyst from FxPro reported that for the past six trading sessions, an ounce of silver has been trading above $21.0 in both directions. The price has been falling for most of February, losing more than 17% from its high ($24.62) to its low ($20.41).
Last month's sell-off brought the price back to the 200-day moving average and created a medium-term oversold condition, which promises to be positive in the short term, creating the potential for a return to $24.0.
At the end of last month, silver was buying back on declines to $21.0. This level also acted as local support (May and November) and resistance (August and October) several times last year. Silver was also held above this level in 2014 and 2016, reinforcing the importance of this area. In our case, silver could find extended downside support here or quickly reverse to the upside.

In addition to the historical significance of current price levels, the mid-points of key moving averages are also worth noting. Last week, the 50-week moving average fell below the 200-week moving average at $21.50. Technically, this is a bearish signal, but we now see that the 200-week is pointing up and the price has corrected significantly in recent weeks.
On the daily timeframe, silver is now struggling around the 200-week average. It is worth noting that silver experienced strong buying from this level in late November. This level is now a magnet for bargain hunters.
The February sell-off in silver took the daily chart's RSI into the oversold territory. A stabilisation in recent days has taken the index above 30, which often signals the exhaustion of selling momentum and the start of a corrective bounce.
Silver has a chance of forming much more than just a corrective bounce. The dollar is losing traction in the currency market, creating a new bearish reversal. Equity indices defended key technical levels last week and are enjoying an influx of new money. However, a rebound in risk appetite may need to be faster to support silver and gold as key players continue to operate in more liquid markets.
Powell's speech deepens bitcoin correction

Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin fell on Tuesday amid falling equity indices and a rising US dollar. BTC updated three-week lows below $22K, losing 2% in the past 24 hours. Risky assets fell sharply amid a hawkish speech from Fed chief Jerome Powell, after which markets began to price in the chances of a 50-basis point rate hike later this month.
BTCUSD re-entered the area of the February lows. However, the dynamics in the FX market were much more capitulatory than in cryptocurrencies, where intraday moves continue to mark buying on dips. Touching levels just below $22K took the price back to the 61.8% Fibonacci retracement of the December-February rally. Consolidation below $21.5K would be a strong signal to move lower.
However, more buying is likely at the end of the medium-term correction in such situations, and the bulls will only celebrate victory once the price returns above $22.5K.

News Background
According to CoinGecko, Tether's (USDT) share of the stackable coin market has surpassed 54% for the first time since November 2021, when the cryptocurrency market hit all-time highs.
El Salvador's president, Nayib Buquele, said the legalisation of bitcoin had boosted the country's tourism sector by 95%, improving the economy as a whole.
Ethereum co-founder Vitalik Buterin began selling his meme crypto assets MOPS, CULT and SHIK. The sale of tokens severely affected their value, and investors suffered losses.
WeChat, China's largest social network, integrated digital yuan into its payment platform WeChat Pay.
German industrial orders support hawkish ECB stance

Alex Kuptsikevich, a senior analyst from FxPro reported that Europe continues to surprise with statistics, suggesting more room for a hawkish tone from the ECB next week. In addition to hawkish inflation readings, data from Germany today highlighted a continued recovery in industrial orders.
Destatis reported a 1% rise in manufacturing orders in January, after +3.4% in the previous month. This sharply contrasts the expected 0.6% m/m correction and adds to market optimism. The new orders index has returned to the level of August last year, although it is still down 10.9% year-on-year. However, the worrying pattern of year-on-year declines is primarily a high base effect. The post-squeeze recovery coincides with a rush to place orders on fears that the military conflict in Ukraine could soon disrupt supplies.

Strong Eurozone data strengthens the hawkish case for the ECB Governing Council, which meets next week for another policy decision. Options for a 50 or 25-basis-point rate hike will likely be on the table for the ECB. On Monday, Holzmann said four more 50-point hikes and an accelerated sell-off of assets from the balance sheet would be needed. Such a scenario is hardly a base case, but the general tone of commentary continues to shift in favour of further tightening.
This is probably the most critical driver for the FX market. Throughout 2021 and 2022, the dollar has rallied as the Fed's tone has become more hawkish round after round. Now it is the ECB's turn, and the fundamentals are in place for EURUSD to rise.
Powell boosts the dollar, but not for long

Alex Kuptsikevich, a senior analyst from FxPro reported that The Federal Reserve chief's speech to Congress has suddenly proved to be a market troublemaker. The Dollar Index has gained more than 1.1% after Powell's hawkish comments opened the door to a 50-basis point rate hike in March.
Interest rate futures are now pricing in a 70% chance that the Fed will raise rates by 50bps on 22 March. This is an impressive coup, given that markets were pricing in only a 30% chance of such an outcome only a week ago, and a month ago, they were pricing in a 9% chance. The sharp revaluation of expectations overnight has driven the bond market, dragging the currency and equity markets down against the dollar.
It is important to note that this repricing came after the Fed chief's comments, not after the data. A month ago, we had the 517,000 jobs created in January, and a week before, we already knew about a big jump in consumer spending and a sudden rise in the PCE price index to 4.7% instead of the expected 4.3% YoY.

In addition, Fed officials have been trying for many weeks since the beginning of the year to make a case for a tighter monetary policy than implied by financial asset prices. We believe the markets expect more than the Fed is prepared to do.
It is a familiar story when the market initially ignores some risks but, at some point to see them only. On the face of it, the markets have gone too far in their fears.
Yesterday, Powell pointed out that the full impact of the rate hikes that have already taken place has yet to be felt. There has been a fundamental divergence between market expectations and the Fed's comments on the timing of the reversal to a rate cut. At the beginning of the year, the markets were pricing the start of policy easing as early as late 2023, which directly contradicted the Fed's projections.
More robust inflation data and an impressive jump in employment are reasons to raise rates further and hold them longer than expected. But a knee-jerk return to the 50-point hike after a 25-point tightening will not help the credibility of the Fed, which only recently signalled more fine-tuning of interest rates and cited signs of disinflation.

The Fed's data, released late on Tuesday, showed a net increase in a credit of 14.8bn in January after 10.7bn in December against an expected 25.2bn - a sure sign of cooling demand that is unlikely to go unnoticed by the central bank.
There could be a further reassessment of the odds in favour of a smoother rate hike scenario. It is reasonable to assume that the Fed will unlikely make a final decision before next Tuesday's CPI data. In the meantime, we would not be surprised if FOMC members try to bring market expectations back to a standard 25-point hike, but with a target rate of 5.50-5.75% (a quarter point higher than previously expected).
If we are right, yesterday's rally in the dollar will not be sustainable, and the DXY will fall back in the coming days, as it has done from these levels since early December.
The crypto market is cheaper than a trillion again

Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that the total capitalisation of the crypto market is back below $1 trillion, down 1.1% over the last 24 hours. We note that sellers drive the market during periods of reduced liquidity - in the early hours of the Asian session, as was the case today.
Bitcoin lost $300 in a sharp move to $21.7K, approaching the February lows and the critical signal level of $21.5K. A break below this level would change the status of the current events from a "typical correction" to a "methodical sell-off".
In that case, the road to $18K for bitcoin is open, and the capitalisation of the entire crypto market could fall back to $820B, as the rally from the beginning of the year would look like a blip in a bear market, not the start of a long uptrend. Many, including ourselves, saw the latter scenario as the main one until the end of last week.

Background to the news
Eric Pearce, CEO of One River Digital Asset Management, believes that the fall in the crypto market is temporary and that bitcoin has the potential to rise again. The key to the rally, he says, will be accelerating institutional adoption of crypto assets.
According to a new Paxos survey, 89% of US crypto investors continue to entrust their funds to centralised exchanges, despite the collapse of several major companies in the cryptocurrency industry. 75% of US citizens are still interested in cryptocurrencies.
US banking giant JPMorgan is ending its banking relationship with Gemini, a cryptocurrency exchange Cameron and Tyler Winklevoss owned.
According to PeckShield, the US government seized 48,998 BTC (worth about $1.08 billion) from the Silk Road darknet marketplace. The 9,825 BTC went to Coinbase, with the rest going to two new wallets.
According to the court ruling, Binance's US unit could buy the assets of bankrupt cryptocurrency lender Voyager Digital.
Chinese deflation as good news

Alex Kuptsikevich, a senior analyst from FxPro reported that China's consumer price growth fell to 1.0% y/y, a sharp slowdown from 2.1% y/y and against expectations of 1.9% y/y. Producer prices continued their deflationary slide in February, falling 1.4% y/y, versus -0.8% in the previous month and a slightly stronger than expected 1.3%.
The opening up of the Chinese economy has a deflationary effect on the domestic economy. In contrast, easing restrictions has had a pronounced pro-inflationary impact in Europe and the US. This effect is easily explained by the fact that the Middle Kingdom remains the "world factory", and the opening of the economy boosts the supply more than the demand, which also helps to restore supply chains.
Over the past 20 years, China has been blamed for the spread of global deflation. In the current situation, this is a desirable side effect. Falling producer prices are also likely to help contain the global inflation problem. This is good news for risk demand, even if it does not appear so at first glance. Often, weak price pressures are associated with low demand. We have yet to see the February retail sales figures next week, but it is unlikely that the lifting of closures will suppress demand.
If we are right and the price fall is a sign of a return to the Chinese norm, this should support equity prices and the renminbi exchange rate.