US02YUS02YAlarm in the markets: a part of the US interest rate curve is inverted that has not been in 16 years
US five-year bond yields rose as much as 10 basis points to touch 2.64%, outperforming those on 30-year bonds.
Receive a cordial greeting, In Spain on 08/30/2022
Sincerely, L.E.D.
Interestrates
Volatility Narrows in GoldVolatility in gold has fallen substantially. We have been holding the broad range between 1895 and 1956, which narrowed to 1917 to 1936. Currently, we are in the middle of this latter range, stabilizing around 1925. When volatility consolidates, a breakout is near. Volatility has been consolidating for more than a week now, so a breakout should be imminent. If we break out, watch 1956 as a profit target, if we break down, watch 1895, the upper and lower bounds of the broad range, respectively.
🔥 Bitcoin & The Federal Funds Rate: An Easy ExplanationEver since the FED has been talking about interest rates, I see questions popping up on social media where investors ask why the federal funds rate (also known as the FED interest rate) is so important for the stock and crypto markets. With this post I'd like to write an easy understandable explanation on what the FED funds rate is and why it is important.
What is the FED funds rate?
The FED funds rate is the interest rate set by the FOMC (the committee of the FED). This interest rate targets the rate at which commercial banks in the USA can lend and borrow excess money to each other. Higher rates means it's more expensive to borrow money for banks, lower rates make it cheaper.
Why is it so important?
The FOMC changes the rate in order to control inflation. Higher rates reduce the money supply because money is more expensive to get (borrow), whilst lower rates increase the money supply because it encourages spending. The latter has happened during the 2008 Financial crisis and the more recent Corona crisis. Encouraging people to spend money generally helps the economy.
Rule of thumb: if the economy is in good shape, higher interest rates are needed to control inflation. If the economy is in bad shape, lower interest rates will encourage people to spend and can help turn things around.
Should I be afraid of it?
Generally, no. As seen on the BTC chart above, the only time that the FED has increased the rates it did not have a bearish effect on BTC. However, this was done during a period of lower inflation than we currently have. To combat the current inflation rates, the FED needs to increase the rate at a much faster and higher rate than what we have seen in the past 30 years. During the 1980's the interest rate was set to 20% in order to combat strong inflation, I'd argue the FED has to do that as well if they don't raise the raids much faster this year. The imposed rate hikes of 0.25% every meeting are not enough to reduce the 10% year-over-year inflation.
In case the FED decides to raise the rates with big steps (>1% per meeting), this can definitely have a huge impact on the stock- and crypto-markets. It will become much more expensive for banks to borrow (and invest) money since money will become more scarce.
There's no immediate danger for the markets. However, if inflation spirals out of control because the FED decides not to act (keep the rates low), they'd have to increase the rates much higher and quicker than everyone anticipates, which will trigger a big sell-off in the markets. In my view, this will be the start of the next crypto bear-market.
The FED interest rates are most definitely an interesting, but also difficult topic. If you think that I've skipped an important part, please share your knowledge in the comment section. The more people know about it, the better.
U.S Dollar Analysis - USD/JPY & EUR/USD In this video, I breakdown why the U.S Dollar is bullish against the Japanese Yen and maintaining its strength against the Euro, as the central bank, ' The Federal Reserve", is raising interest rates aggressively in 2022 to deal with high domestic inflation.
This is in contrast to the European Central Bank and Bank of Japan, which have pledged to keep interest rates low, due to low inflation expectations over the coming years.
I will show you how Bond yields drive currency markets when rising yields in the U.S pay a premium over Europe and Japan when there is a divergence in monetary policy.
Enjoy!
Trend of BTC & GOLD.Did you guys found that BTC and GOLD have a similar trend while interest rate change since 2018?
Return of BTC is just 10 times leverage of GOLD!
Bitcoin: Supercycle Crap Shoot #2Follow-up chart to my previous post. Seems as if I was correct about the bottom, so if it holds here and breaks above the 53k range, I can easily see it hitting roughly 70k. Granted, other factors including the projected interest rate hikes could alter this forecast.
Gold Maintains the RangeGold has held the range between 1895 and 1956, that we discussed yesterday. At this time yesterday, we were roughly in the middle of the range, however since then we have started to edge up again. We are seeing notable resistance at 1956, as predicted due to the dense patch of technical levels above between 1956 and 1982. The Kovach OBV is starting to drift higher ever so gently, however the volume is still comparatively low. We will require much more momentum before we can break out either way. If we break down, there is a vacuum zone to 1876, then 1865. A breakout will face resistance from technical levels in the 1950's through the 1970's, but if we can clear these, 1999 is the next target.
Will the Bond Market Continue to Sell Off??Bonds have reached a relative high at 123'01 to the tick then promptly rejected this level. A red triangle on the KRI confirmed resistance and we headed straight back down to through the 122 handle to finally find support at 121'28. We are currently seeing some support here, confirmed by a green triangle on the KRI. However the Kovach OBV has taken a steep dive south suggesting the bear rout is about to pick up again. If so, the next target is 121'00, then 120'14. If we are wrong, we must break through 123'01 before we can consider higher levels.
US 10 YEAR BOND US 02 YEAR BOND US10YAlarm in the markets: a part of the US interest rate curve is inverted that has not been in 16 years
US five-year bond yields rose as much as 10 basis points to touch 2.64%, outperforming those on 30-year bonds.
Receive a cordial greeting, In Spain on 03/30/2022.
Sincerely, L.E.D.
GOLD: The Short-term Structure Looks Bearish Fed hawkish policy to fight inflation is putting in a high on GOLD. It's also about the speculation of how many hikes may happen this year. However, if FED will suddenly turns out to be less aggressive then this will quickly stabilize the gold prices, but for now, it looks like the current tone will not change so metals have room for more weakness.
At the same time I am also looking at DXY that is trying to break out of a triangle and towards 100 level.
Have a nice trading week everyone.
Grega
Mortgage Rates Explode Higher at Second Fastest Rate in HistoryThe monthly chart for US 30-year mortgage rates is exploding higher at a rate not seen since the 1970s. This chart shows that monthly rates are following the 3rd standard deviation higher, which is an extremely rare rate of increase.
The Commodity Channel Index (CCI) is shown at the bottom of this chart. The CCI is a momentum oscillator used in technical analysis primarily to identify overbought and oversold levels by measuring an instrument's variations away from its statistical mean. It is currently at the second highest level ever (on the monthly chart), second only to the 1973 Oil Crisis. That crisis caused a bear market between January 1973 and December 1974 that affected all the major stock markets in the world. It was one of the worst stock market downturns since the Great Depression. The stock market lost 45% of its value during this time.
How confident are you that the Federal Reserve will be successful at engineering a soft landing? How do you define a 'soft landing'?
Gold Facing Resistance as it Tries to Break OutGold has encroached upon upper levels from its range between 1895 and 1956. We are currently facing resistance from a cluster of levels in the 1950's and 1960's. This dense patch of levels will continue until the 1970's or so. The Kovach OBV has picked up, and if we can break through all these levels we should be clear to test the 1980's, with 1982 in particular a likely target. If we break down, the former lower bound of our range at 1895 should provide support.
Bonds Bear Rout Bottoming Out??Bonds have stabilized for now after a brief relief rally. We tested higher levels at 123'15 or so, after falling 7 handles from the 129's to the 122's in less than one month. The rally was short lived, and just a technical respite into the overall bear trend, exactly as we had predicted here. The price promptly rejected this level, as anticipated, and headed back down to lows. We found support just above the low at 122'10 and have been equilibrating thereabouts, between this level and 123'01. There is nothing to suggest any deviation from the bear rout, overall except perhaps for small relief rallies. If the bear momentum picks up again our next target is 121'28.
Fed's Catch-22A Catch-22 is a problem for which the only solution is denied by a circumstance inherent in the problem or by a rule. This is exactly the problem the Federal Reserve faces.
Historic inflation continues to accelerate, becoming embedded into the market's expectations and risking a spiral effect
In order to stop rapid inflation, and achieve its mandate of price stability, the Fed must raise interest rates as rapidly as inflation is rising.
The Fed cannot raise interest rates as rapidly as would be needed to slow rapid inflation because it would rapidly begin to freeze liquidity in the corporate bond market.
Rapid tightening would spillover to corporate earnings, asset prices, consumer borrowing and spending, economic growth and ultimately employment, countering the Fed's mandate of maintaining stable employment.
The last time that investment grade corporate bond prices fell below their monthly EMA ribbon support was in March 2020, when the Fed made emergency purchases of corporate bond ETFs to ensure liquidity. Now the bond prices are falling below their monthly EMA ribbon support and the Fed is taking the exact opposite measure by calling for accelerated rate hikes.
Is it possible to avoid a recession at this point? Only time will tell but the charts seem to doubt it.
Every Day a New Low for Bonds!!Bonds keep falling as yields are rising globally. It seems that we have to redo our levels to predict yet another new low in ZN. The Kovach OBV is solidly bearish and we have fallen 7 handles, from the 129's to 122's in the month of March. We are currently testing support at 122'10, but the bear rout shows no sign of stopping. It would be unwise to try to catch a knife here, although the probability of a relief rally increases with each rung down. Our next taget is 121'28. A relief rally could test 123'01 or 123'15.
JPOW, Fed rates, and New Signs of Life in the Crypto Space!The Fed has threatened to raise interest rates two more times this year. But will they? That and news signs of life on the charts. For the first time since November, I am starting to see small indications that the bulls are about to make some moves!
10-year at the top of long term channelWill the 10 year finally break out of this long term down channel? The Fed and entire investment world says yes it will and soon. But the chart says it may have a little trouble exceeding this level in the near term.
USDMXN; Ready To Break 20.00 Support? One of the most attractive currencies this week can also be MXN after strong CPI figures back on March 08, so there can be a hawkish policy decision on March 24 from Bank of Mexico. We see some important evidence for a resumption lower.
NASDAQ 100: Read the descriptionNasdaq 100 bounced back from the lows of 12950 and had trouble with staying under the 13000 level.
Put call ratio for the market (PCC) have been falling, which indicates more calls are bought than puts. Looking at the past levels of the ratio it seems likely that the ratio is ready for mean reverting at this point. However put/call for equities (PCPS) are high, and could also be ready for a move lower while the general market put/call moves higher. Notice that the last weeks increase have not caused the put/call for equities to rise as much as previous when prices of nasdaq increased. this could again indicate that investors are less desire loading calls.
Inflation expectations are still high (RINF), and FED indicated 6 more rate hikes to an expected federal funds rate of 1.9% end of year.
VXX have been falling as a result of the increased price in stocks. But we could still see higher levels of VXX on the basis of increasing interest rates, high inflation and lower P/E ratios.
High inflation (USIRYY) results in lower levels of consumer and business spending which lead to declining sales higher costs and therefore lower earnings. And a combination of high interest rates and high inflation leads to lower P/E ratio
US03MY is also on the rise, and beta values for the 10 largest components of Nasdaq is over 1, which means in bear market, those stocks tend to fall more than the market. High risk free rate (US03MY) and high beta values will increase the CAPM cost of equity which again supports a price reduction in equities.
The strategy is the same as before. Short every move higher (when in bear markets, the sudden and unexplainable and dramatic increase in stocks are brutal -this will shake retail out of their positions shorts and longs before moving lower. I still anticipate a move lower for 12000 level as the first low level. (I could be wrong for the move lower, but managing the right leverage will keep one from blowing up account or generating too much drawdown.)
Everyone have FOMO right now of missing the bottom. Which is what the big guys want retail to have.
Again i dont say that there are no bottom, we could have bottomed out, but when looking at all the indications I am convinced that we still can see lower price levels this year.
Stocks Blast Off After FOMC!!Stocks have rallied after the first rate hike in three years by the Federal Reserve. Novice traders might surmise that stocks would collapse off this news, however dedicated readers here should have been prepared. We called this rally days ago. Why? The rate hikes have been priced in months ago and we are seeing a 'relief rally' which follows with more clarity on monetary policy.We pivoted from 4144 and shot up through multiple levels to break highs at 4327. When the decision came we saw a brief pullback then a subsequent rip to even higher leves (A friend bought at 4261 and crushed it, cheers MJ!!). From here we can expect either ranging or higher prices, but will likely see resistance at 4421. We must break this level to see anything higher. Currently, we are seeing a brief pullback to 4327, where we should find support. If we retrace further 4293 should provide further support.
Direxion Daily S&P 500 High Beta Bull 3x SharesIf the market trades higher after the FED meeting today, then this ETF can offer a very nice price investing in the SP500 on a leveraged position .
If the SP500 moves higher, Crypto may also.
Litecoin Rallies Ahead of the FOMCLitecoin has spiked up with the rest of the crypto market as investors anticipate the FOMC decision today. The Fed is expected to lift interest rates by 0.25% (25 basis points) to combat inflation. We blasted up through $105, and attempted to cross the vacuum zone to $114, but a sharp retracement took us back to $105. We appear to be getting a lot of support from this level which once provided significant resistance. Despite the volatility, the Kovach OBV has increased substantially, though has now leveled off as the volatility has subsided. If the fervor dies down, then the value area of $101-$105 will act as a magnet. If not, we must break $114 to see higher levels.
Ethereum Lifts as Fed Decision LoomsEthereum got a lift with the rest of the crypto market as investors prepare for the FOMC decision today . Crypto's are behaving increasingly more like risk on assets, and this asset class (which also includes stocks) got a nice lift in what is known as a 'relief rally'. We blasted through $2651, and after some volatility, continued the uptrend into the vacuum zone between $2651 and $2762. The Kovach OBV has shot up notably, suggesting there may be some real legs to this rally. But we must break $2762, which has proven to be a prohibitive barrier in the past, before we can see higher levels. If we reject these higher levels then we are likely to seek support around $2500 (that previous range) once more.
