2/ Last week, both CPI + PPI data were optimistic for risk assets, with each showing that the disinflationary trend remains.
However, the Fed's message cautioned that the market shouldn't become overly enthusiastic about pricing in rate cuts in the near term.
This week is crucial for maintaining BTC's (and by extension) the broader crypto market's short-term trend.
3/ Bulls are keen to see ongoing signs of disinflation to feel confident that the Fed will ease from its current restrictive stance, thereby encouraging traders to venture out on the risk curve - and to invest in assets like cryptocurrencies
2/ Last weekβs 'strong' employment data dampened crypto + stock bull's hopes for an imminent rate cut.
The market now almost completely pricing out a July rate cut by the Fed, with the probability of a cut lower by ~10% when compared with this time last week.
3/ Bitcoin + other cryptocurrencies have borne the brunt of this decreased appetite for risk so far this week.
For the first time in a month, outflows were recorded from spot BTC ETFs - likely owed to Friday's jobs report, along with fears of US inflation data + FOMC this week.
- Drivers of DXY in 2023 (up, down or sideways)
- DXY correlations / why the USD matters.
Let's goπ
2/ Firstly, let's understand how the DXY is measured and then take a look generally, at what makes currencies move.
DXY is a measure of the dollar's performance against a basket of other fiat currencies. Narratives/news specific to a non-dollar currency, will also move the DXY.
3/ The Euro makes up ~58% of the basket, and thus moves the DXY with most power.
What the Euro does, the DXY will do the opposite. So it pays to track what's going on in Europe, not just the US, to understand where the DXY is headed!
1/ While most data is lagging, what tends to lead price is monetary + fiscal liquidity...
Let's quickly investigate whether liquidity has peaked or if new highs are to comeπ
2/ The recent surge in global liquidity has been owed to:
- US debt ceiling situation --> Treasury drawing down on their cash reserves,
- Banking crisis --> Fed balance sheet expansion to backstop failing banks,
- China restarting their economy post-COVID --> stimulate with $$
3/ Tracking liquidity would've kept you on the right side of the risk asset reversals + trend so far this year.
Net USD liquidity is now greater than when the Fed commenced QT in April 2022! However, over the coming months, the US debt ceiling situation could quickly change that