Sat, Oct 23, 2021 @ 10:58 GMT
HomeContributorsFundamental AnalysisTitanic Is Made Of Iron, Sir, It Can Sink

Titanic Is Made Of Iron, Sir, It Can Sink

It’s just another slow day in the traditional markets, while the sell-off in cryptocurrencies gain traction following the Chinese Central Bank’s warnings that digital tokens cannot be used as a form of payment. The Chinese position on cryptocurrencies is clear from the beginning: trading and usage of cryptocurrencies are simply forbidden. Therefore, the news is nothing ‘new’, but given that crypto-traders are too sensitive to negative news nowadays, it adds to the downside pressure on cryptocurrencies.

Bitcoin cleared the major 38.2% Fibonacci support near $43K on the past half-a-year rally and stepped into the medium-term bearish consolidation zone. Furthermore, the price of a coin has just dropped below the $40K psychological level for the first time since February. This is also where we see the 200-day moving average. From a technical standpoint, the indicators are flashy red and point at further sell-off in Bitcoin. The next important support level stands near $37K, the minor 50% Fibonacci retracement, then the $30K mark, the major 61.8% Fibonacci support and a major psychological support. And yes, there is a chance that we see a pullback to these levels and even below, at least in the short run. Don’t forget that the price of a coin dived to $3K after having hit $20K a couple of years ago. So yes, Titanic is made of iron and it can sink, and even more as we see a limited global risk appetite overall, nowadays.

And, money doesn’t necessarily flow into equities.

The inflation fears, the virus fears, the fears of seeing a slower-than-thought or a delayed recovery due to the new restriction measures on the Indian variant of the coronavirus are all disquieting for the average investor.

Yet today’s FOMC minutes could give a sigh of relief to globally worried investors about the future of the US monetary policy. Because the Fed went too expansive, and because the rally we see in equity prices is much supported by the ultra-cheap liquidity environment, it’s no brainer that any tightening on the Fed end would be a punch to the markets face. But we know that the Fed will do its best to prevent that from happening. I believe today’s FOMC minutes will be no surprise for investors. The worst would be hearing whispers on tapering, but the Fed knows that the market is not ready to have that taper talk just yet. Still, most investors could no longer turn a blind eye on rising inflation, knowing that the taper conversation will have to happen sooner rather than later. A simple calculation warns that if we see inflation stabilizing near the current levels for two more months, than the Fed’s target of an ‘average of 2%’ will be hit.

But until then, the deluge of strong earnings and the for-now supportive Fed policy should limit the sell-off in all major US indices. The S&P500 should continue seeing support near its 50-day moving average, near 4085 level, if we see no dramatic change in the overall sentiment, and we will probably see no such dramatic change in the close future. Therefore, the 4000 handle should act as a solid support to the US big caps, with a potential of recovery toward the 4200 level with an eventually improved appetite.

The US 10-year yield remains stable near 1.65% and the US dollar softens against major peers.

The EURUSD successfully took out the 1.2180 resistance yesterday and rallied past 1.2230 on stops. Trend and momentum indicators remain comfortably supportive of a further extension of gains towards the 1.2350 peak seen last January. We could see a strong buy interest above the 1.2150/80 area.

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