Bond Markets Signal Fed Hike, Bitcoin Plummets Over 20% | FXTRADING.com - International

Bonds markets are signalling a full 25-bps hike from the Fed in 2023, which knocked US indices form their perch. Bitcoin also fell 27% overnight.

Bond Markets Signal Fed Hike, Bitcoin Plummets Over 20%

Whilst this may seem too far off for many, markets are forward looking. And it’s the relative change that is important. The fact that traders are now bringing forward their expectations for a hike, however far away, is enough to move markets.

As mentioned in yesterday’s report, the reflation trade is heating up with the rise in commodity prices, and now the bond markets are pricing in a potential hike from the Federal Reserve.

The Eurodollar futures contract, which is due to expire in December 2022 is now signalling a 10-bps (basis point) rise from the Fed, up from 0-bps change last week. And if we look at the Eurodollar September 2023 contract, it now signals a full 25-bps hike by that expiration date.

Whilst this may seem too far off for many, markets are forward looking. And it’s the relative change that is important. The fact that traders are now bringing forward their expectations for a hike, however far away, is enough to move markets.

And it was enough to knock US indices from their all-time highs. All major benchmarks reversed from their highs to see the Nasdaq-100 (USTEC) lead the way lower with a -1.5% decline, with the S&P 500 (US500)  and DJIA (US30) falling -1.5% and -1.4% respectively.

Still, it seems a natural time for investors to take profits. After pushing stocks to fresh record highs following the confirmation of Joe Biden’s win, traders are now wary of being overweight equities heading into next week’s earnings season.

 

Easy come, easy go. Or Just Another Day For Crypto?

…according to some estimates, bitcoin is now 11% harder to mine and the 30-day average of the MPI (miner’s position index) is at its highest level since the July 2019 top.

After a slew of headlines as bitcoin (BTCUSD) rallied to dizzy new heights, it was time for prices to go a different direction. Bitcoin, the world’s largest cryptocurrency crashed 27% yesterday alone. In any other markets, a 20% drop would signal a bear market. But for bitcoin, it’s just another trading session.

Failure to hold onto gains above 40k suggested it was time for a correction. And perhaps the top may not come as too much of a surprise, given its increasingly exponential rise above 40k suffered few setbacks. But according to some estimates, bitcoin is now 11% harder to mine and the 30-day average of the MPI (miner’s position index) is at its highest level since the July 2019 top. Moreover, the US dollar is also embarking upon an overdue correction higher itself, which is capping further upside on bitcoin.

And as it tends to be the case following a large move from bitcoin, other major cryptocurrencies followed suit. Ethereum (ETHUSD) fell -19% by the close after stopping just shy of its own record high. Ripple’s (XRPUSD) XRP is just -2.8% lower, but then it has already suffered its own setback and hefty losses from late December following SEC’s court filing.

 

USD Continues to Correct Higher

Still, the macro picture for the dollar remains overwhelmingly bearish. So we will continue to look for opportunities to fade into rallies.

The US dollar index (DXY) rose to a 3-week high overnight as part of an overdue, technical correction. This allowed EUR/USD to extend losses after breaking its bullish trendline, and the USD was the strongest major against its peers. Still, the macro picture for the dollar remains overwhelmingly bearish. So we will continue to look for opportunities to fade into rallies.

NZD/USD and AUD/USD were the weakest majors, as the stronger USD and weaker equity prices weighed on the riskier assets. USD/JPY touched its highest level this year but has found resistance at the bearish trendline form the March 2020 high.

Democrats Move to Impeach Trump

But the bigger question is whether they will then pass the impeachment article over to the Republican Senate or wait until after January 20th

As widely expected, the US House of Representative introduced an article of impeachment against sitting President Donald Trump. The impeachment is just one charge of “incitement of insurrection”. At this stage it is simply a formality, and the Democrat-led House is expected to vote for his impeachment on Wednesday (early hours of Thursday in Australia). But the bigger question is whether they will then pass the impeachment article over to the Republican Senate or wait until after January 20th when Joe Biden has been inaugurated before passing it over to a Democrat Senate.

Republicans continue to feel the heat from all angles following last week’s riots. Several are now facing a backlash from corporate America, with companies such as Dow Inc, AT&Y, Comcast Corp, Verizon Communications Inc and American Express threatening to withhold donations to Republicans who voted to overturn Joe Biden’s victory.

Meanwhile, Trump’s approval rating has dropped to an all-time low after the riots, with 60% unfavourable of him according to a poll from Quinnipiac University. This follows the same path as polls from Politico and Morning Consult last week.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*

*

Straight to your inbox

Get The Latest Market News & Forex Trading Tips Delivered.

Join a growing list of like-minded traders and get the latest market information, tactics, and news right in your inbox.

Subscribe

Ready To Start Trading On FXTRADING.com ?

Open Live Account or Get 30-Day Free Trial

Send this to a friend