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Key Highlights

• Bitcoin price climbed above $20,000 but struggled near $21,000.
• It broke a key bearish trend line with resistance near $19,370 on the 4-hours chart.
• The price could resume upside if it clears the $20,700 and $21,000 levels.
• EUR/USD and GBP/USD slowly moved lower after facing hurdles.

Bitcoin Price Technical Analysis

Bitcoin price started a steady increase from the $18,500 zone against the US dollar. BTC/USD climbed above the $19,500 and $20,000 resistance levels to move into a positive zone.

Looking at the 4-hours chart, the pair settled above the $20,000 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

During the increase, the price broke a key bearish trend line with resistance near $19,370 on the same chart. Finally, it tested the $21,000 resistance zone. A high was formed near $21,009 before there was a downside correction.

On the downside, an initial support sits near the $20,150 level. The main breakdown support sits near the $19,800 zone. If there is a downside break, bitcoin might decline towards the $19,000 support in the coming days.

On the upside, the price is facing a significant resistance at $19,700. The main resistance sits near the $21,000 level. A close above the $21,000 level may perhaps start another steady increase in the coming days.

In the stated case, the price could rise towards the $22,000 level. Any more gains could set the pace for a move towards the $22,500 level.

Economic Releases

• BoE Interest Rate Decision - Forecast 3.00%, versus 2.25% previous.
• US Initial Jobless Claims - Forecast 220K, versus 217K previous.
• US ISM Services PMI for Oct 2022 – Forecast 55.5, versus 56.7 previous.

Fed Review: Another Hawkish 75bp Hike - We Now Expect 50bp also in February

• Fed hiked rates by 75bp as broadly expected. Powell delivered a hawkish message, emphasizing the need to tighten financial conditions further. We have not seen Fed make significant progress towards its goals over the past month.
• Thus, we adjust our Fed call and expect a 50bp hike in February in addition to our earlier forecast for one more 75bp hike in December.
• Markets took the FOMC statement dovishly, but the move faded during the press conference and EUR/USD declined below pre-meeting levels while 2y UST yield rose around 6bp. We maintain our forecast for EUR/USD at 0.93 in 12M.

Fed hiked rates by 75bp in its October meeting as widely expected. There was no updated 'dot plot' or economic forecasts. While Powell did acknowledge the downside risks to the economy, he also emphasized that "is is very premature to be thinking about pausing". 

While there is uncertainty around the lag on how monetary policy tightening impacts the real economy, Powell emphasized that Fed is closely monitoring the development in overall financial conditions. As we highlighted in our Fed preview: Too early for a pivot, 28 October, we have not seen real financial conditions tightening over the past month, and instead inflation expectations have ticked slightly higher. Thus, Fed has not made any progress on its goals despite realized inflation continuing to surprise to the upside. We adjust our Fed call and now see the terminal rate at 5.00 - 5.25% after a 75bp hike in December and a 50bp hike in February.

Powell did not hint if there is a bias towards hiking either 50 or 75bp in December, but also noted that the terminal rate matters more than the exact pace of hikes. We agree, but also note that market is already pricing a decent (around 50%) probability for the 75bp hike, and from the perspective of maintaining financial conditions restrictive, Fed most likely does not want surprise markets dovishly in the current situation.

Powell was also clear on the asymmetric balance of risks in terms of policy tightening, which was already flagged in the September minutes. If Fed ends up tightening too much and causing a recession, it can very quickly also reverse its policy stance to more accommodative. But tightening too little risks inflation pressures becoming increasingly entrenched. Prolonged period of high inflation, tight monetary policy and constant need to push the terminal rate higher will eventually increase the risk of unnecessarily deep recession and a clear rise in unemployment. In other words, Fed prefers a short recession over years of stagflation.

While Powell did not see a wage-price spiral right now, he also added that when it is evident, Fed has already failed. US wage inflation has remained above Fed's target, and the JOLTs Job Openings (which is among the best leading indicators for wage growth) surprised once again to the upside in September. Fed is still faced with aggregate demand remaining too high especially in the labour markets, which leads to persistent and broad-based inflation. Fed needs to continue tightening financial conditions further, and it simply does not have the luxury of giving up on the hawkish stance to achieve this.

Summary

• The FOMC raised its target range for the federal funds rate by 75 bps today, which was widely expected.
• Today's statement was very similar to the one that was released after the last meeting on September 21. That said, the FOMC noted for the first time that it will consider the cumulative degree of tightening and the lags inherent in monetary policy changes when deciding on future rate moves.
• These changes to the statement indicate to us that the Committee is prepared to slow the pace of tightening at future meetings. But Chair Powell suggested in his post-meeting press conference that the FOMC is not yet done tightening policy. Moreover, the Committee may need to raise rates higher than most members thought in September.
• In our view, the bar for another 75 bps rate hike at the December 14 meeting is fairly high. Today's events strengthens our conviction that the Committee will deliver a 50 bps rate hike in December.
• But there are two more employment reports and two more CPI reports that will be released between now and December 14. The outcome of the December 14 meeting will depend crucially on what those data releases tell the FOMC about the state of the U.S. economy.

Source: Federal Reserve Board and Wells Fargo Economics

FOMC Is Not Yet Done, Although Pace of Future Tightening May Slow

As universally expected, the Federal Open Market Committee (FOMC) hiked rates by another 75 bps at its meeting today, bringing the target range for the federal funds rate to 3.75%-4.00%. The Committee has increased the target range by 375 bps since March, the fastest pace of tightening since the early 1980s when, much as today, inflation was viewed as Public Enemy #1.

As is customary for the first FOMC meeting of the fourth quarter, the Committee did not release a Summary of Economic Projections (SEP), in which the FOMC details its macroeconomic forecasts including the so-called "dot plot." (The next SEP will be published at the conclusion of the December 14 meeting.) Consequently, market participants need to infer the Committee's expectations regarding future policy moves from the published statement and Chair Powell's press conference. In that regard, the statement that was issued today read very much like the September 21 policy statement. Specifically, the FOMC said "recent indicators point to modest growth in spending and production," and that "job gains have been robust in recent months." The Committee continued to describe the inflation rate as "elevated," and it continues to anticipate that further increases in the target range for the federal funds rate will be "appropriate." Indeed, Chair Powell noted in his post-meeting press conference that the FOMC still has "some ways to go" on tightening policy, and that the terminal fed funds rate may be higher than the 4.50%-4.75% target range that was shown by the median "dot" in the September SEP.

But the FOMC made one meaningful change to the statement, which we anticipated in our recent FOMC "Flashlight" report. Specifically, the Committee stated for the first time that it will "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." As noted above, the FOMC has now raised rates by 375 bps since March. But rate hikes do not have an instantaneous effect, and the effects of previous tightening are still filtering into the economy. Moreover, the current target range for the fed funds rate is now at a level that most observers would consider to be "restrictive." That is, rates are now exerting headwinds on the pace of economic activity. The economy could decelerate significantly, if not begin to contract, if the FOMC continues to tighten policy aggressively.

In our view, the use of this new clause in the statement signals that the Committee is prepared to slow the pace of tightening at future meetings. We have been forecasting that the FOMC will raise the target range for the fed funds rate by 50 bps at its December 14 meeting. Today's developments reinforces our conviction regarding this forecast. And markets seem to agree. Market pricing prior to the news was consistent with a 40% probability of a 75 bps rate hike on December 14. As of this writing, that probability now stands at only 25%.

The FOMC does not need to make another rate decision for six weeks, which is why it mentioned "economic and financial developments" in the statement. Notably, the employment report for October is slated for release on Friday, November 4 with the November report scheduled for December 2. We will also get two more CPI reports between now and December 14 (November 10 and December 13). Continued strength in payrolls and/or higher-than-expected inflation outturns could lead the Committee to reconsider on December 14. That is, the FOMC could very well determine at that meeting that another 75 bps rate hike is "appropriate" if growth remains strong and/or inflation remains elevated.

The Committee clearly thinks it needs to tighten further and, in our view, December will not be the last meeting in this cycle at which the FOMC hikes rates. We currently look for the Committee to increase the target range for the fed funds rate by 25 bps on February 1 and by a final 25 bps on March 22. But we think the bar is currently high for another 75 bps rate hike on December 14. Although individual FOMC members will have different opinions on the appropriate pace of tightening going forward, we believe the "consensus" thinks that 50 bps on December 14 would be more appropriate than 75 bps, at least at the present conjuncture. Stay tuned.

• EURJPY reversed from multi-year resistance level 148.00
• Likely to fall to support level 144.00

EURJPY currency pair recently reversed down from the multi-year resistance level 148.00 (which stopped the sharp uptrend in 2014), standing above the upper weekly Bollinger band.

The downward reversal from the resistance level 148.00 stopped the earlier sharp upward impulse wave (3) from January.

Given the strength of the resistance level 148.00 and the overbought weekly Stochastic, EURJPY can be expected to fall further toward the next support level 144.00 (which reversed the pair in the middle of this year).

https://www.youtube.com/watch?v=-yiC8wZvzgQ

Fed hikes by 75bps to 3.75-4.00% as widely expected. Tightening bias is maintained as "the Committee anticipates that ongoing increases in the target range will be appropriate".

However, in the statement, Fed added, "in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

The additional language suggests that Fed might be ready to slow down the pace of tightening ahead.

Full statement here.

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.

Fresh ADP estimates noted a 239K increase in US employment in October, showing more substantial job growth than in September (192k), contrary to the expected slowdown to 178K. This data primarily guides traders as the most similar indicator before the official release is publicised on Friday.

The ADP estimated that manufacturing cut 20K jobs, the first reaction to higher interest rates and a strong dollar. Meanwhile, mining and construction created jobs (+11K and +1K, respectively). The services sector was producing jobs in recreation (+210K), trade and transportation (+84K), while information (-17K), financial (-10K) and professional services (-14K) declined.

Earlier in the week, there was an unexpected rise in vacancies of 437K in September, the first increase after five months of decline. At the same time, the global vacancy rate remains by a large margin at abnormally high levels.

The market reaction, however, was much more subdued than the figures suggested, as all attention is now focused on the Fed’s rate decision and the accompanying commentary later today. However, this data is an indirect and early warning of the labour market’s strength, to which the Fed is now paying so much attention. A solid rise in employment could be an early warning that we should not expect the Fed to soften its tone and slow the pace of rate hikes from the next meeting (the markets fully account for the 75-point hike).

EURGBP has been trading in a consolidative manner recently, staying above the 0.8565 support level, marked by the low of September 6, but also below the lower boundary of the sideways range that contained most of the price action between October 3 and 27. This suggests a cautiously negative short-term outlook and the fact that the pair is trading below all three of the plotted exponential moving averages adds extra credence to that view.

The RSI ticked down after it hit resistance near 50, while the MACD is lying within its negative territory and appears ready to cross below its trigger line soon. Both indicators are pointing to negative momentum and are supporting the notion of renewed selling in EURGBP.

A clear dip below 0.8565 would confirm a lower low on the 4-hour chart and could initially aim for the psychological zone of 0.8500, which is slightly below the inside swing high of August 19. If there are no buyers to be found around there, a break lower could extend the fall towards the 0.8400 territory, which acted as a floor during the whole month of August.

The move signaling that the bulls have stolen all the bears’ swords may be a break above 0.8780, which is the upper boundary of the aforementioned range. In such a case, the pair could advance to the 0.8865 zone, marked by the highs of October 11 and 12, the break of which could set the stage for a rally towards the 0.8980 territory, defined as resistance by the high of September 29.

To wrap up, EURGBP has been trading in a quiet manner recently, staying below the lower bound of a prior sideways range. A break below 0.8565 would confirm a lower low and perhaps the bears’ supremacy.