TA Tuesday: Market reacts as Fed moves to address the high inflation

At the time of writing, $BTC is trading at $42,800 (+9.09% in 7 days), $ETH is trading at $3,000 (+15.07% in 7 days), and the spread ETH/BTC is trading at 0.07 (+5.54% in 7 days).

This week’s main event was the FOMC meeting: the overall consensus is that the Fed was hawkish, but still too cautious.

The six 25bps hikes for the year will not be enough to face rising inflation of 7.9%.

On Monday, Federal Reserve Chairman Jerome Powell said „The labour market is very strong, and inflation is much too high“, then added that the Fed will take all „necessary steps“ to address this.

Target rate probabilities for May 4, 2022 are currently: 36.1% 25bps and 63.9% for a 50bps rate hike.

Risky assets, i.e. crypto and stocks, initially reacted negatively to Powell’s comments, with $BTC then recovering after a brief dip below the $41k threshold.

Traditional safe havens rose, e.g. gold and the US dollar, while the 10-year treasury yield climbed above 2.3%, which is its highest level since 2019.

Altcoins outperformed bitcoin, suggesting that traders are still comfortable with risk.

Similar to spot trading volumes, implied volatility (IV) in the crypto options market declined after the Fed’s interest rate decision last week.

This resulted in the spike in trading activity (as well the choppy price moves) being short lived.

While the BTC ATM term-structure flipped from backwardation to contango, the entire BTC IV surface shifted lower WoW: short-term options (10vols), and long-term options (5vols).

This is the result of many traders unwinding the positions taken ahead of the FOMC meeting.

Similarly, ETH short-term volatiliy is trading at a discount relative to BTC.

This is something that rarely happens, and is the result of large volatiliy selling as the market was well positioned to protect the downside risk in ETH.

In the same way, both BTC and ETH skews are finally trading around par, as calls regain some interest.

On the futures side, while the open interest keeps being stable WoW, the BTC Futures Annualized Rolling 3mth Basis lifted 2.73pts higher, and is now trading at 3.79%, and the ETH ones lifted from 1.67% to 4.09%.

As leverage is not back yet, funding rates keep being nearly 0 for both BTC and ETH.

Worth noting is that in terms of the June 24, 2022 Futures, XRP and ALGO are trading at 4% annualised premium on FTX, with spot, $ALGO is trading at 0.8178$ (+14% in 7 days), and $XRP is trading at 0.8426$ (+9.95% in 7 days).

On the BTC tech side –

the technicals look promising:

– Ichimoku cloud called a long position on March 19 at $41.5k

– MACD Level (12, 26) is in favour of buying

– Short-term moving averages are in favour of buying

Key supports and resistances remain the same:

– Support: 35k – 38k

– Resistance: 45k

 

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