The shock of the bank failures in the United States was brief, drastic and the reaction of the all-powerful Federal Reserve (FED) just as much. The FED’s monetary inflection had structural consequences on macroeconomic expectations and on stock market asset classes, in particular the continuation of the downward trend of the US dollar on Forex, a factor supporting the rise cryptocurrencies.
The pivot of the United States Federal Reserve (FED) is close
A first assessment can be made of the recent banking stress in terms of impact on the financial markets since the first announcements of bank failures on March 9 in the United States. In terms of performance, four big winners occupy the podium:
- The credit market (the price of bonds is in sharp upward recovery);
- The price of the euro dollar which appreciated by 400 pips (the fall of the American dollar against a basket of major currencies);
- The price of precious metals on the rise, in particular gold and silver metal;
- The course of Bitcoin (BTC) which occupies the first place of the podium with more than 20% increase;
There is a market logic that explains the presence of these assets in the group of winners, their inverse correlation link with the dynamics of the US dollar in the foreign exchange market and the cycle of nominal interest rates in the credit market. .
Indeed, the first and immediate consequence of the banking stress was the radical shift in the Fed’s monetary policy expectations, with abundant recourse to the Fed’s balance sheet (sharp rise in the level of liquidity on the market) and a vertical drop market rates. The latter fell as the market now expects the Fed’s terminal rate to have been reached this week with the Fed funds rate rising from 4.75% to 5%.
It is still possible (this will depend on the next inflation update) that the terminal rate could be 5.25%, but the market is now looking at a FED pivot this summer (i.e. the start of a downward trend in the Fed’s key rate).
In the end, these new expectations for the cost of money and the continued decline of the US dollar in Forex are two fundamental factors that combine in favor of the rise in price of the group of winners described above in the article.
Below you will find a table with the new projections for the Fed’s key rate according to the next monetary policy decision dates.
Chart from the CME FED WATCH TOOL projecting the upcoming US Federal Reserve (FED) interest rate cycle
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Will the altcoin season finally begin?
The performance of cryptocurrencies over the past two weeks has been largely due to the bullish performance of the bitcoin price. The arbitrages that took place against certain stablecoins and in favor of BTC supported the price of the latter, as well as the cross-asset data presented in the first part of this article.
At the current stage, the troops (the altcoins) do not follow the general-in-chief (the BTC) yet, and here is a missing criterion to obtain a complete bullish argument.
Technical analysis for bitcoin price is bullish as long as the new support at $25,300 is preserved, but it would take a takeover from altcoins and a rise in futures trading volume (only spot volume is up currently) to validate for good the bullish reversal.
This altcoin season may begin soon as BTC dominance has returned to the top of its range ; to be continued.
Chart that exposes the comparison of Bitcoin dominance with Ethereum dominance
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Vincent Ganne is a market strategist, technical analyst, trainer on the stock market and speaker on BFM Business. With a long experience in the field of analysis, he offers a global approach to financial markets. Both from a macroeconomic point of view and from a microeconomic point of view. Vincent Ganne also uses many aspects of chart analysis with the aim of forecasting trends in financial assets over the medium and long term.
Vincent Gane
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