EUR/USD: No Interest Rate Hikes from the Fed and ECB in the Near Future?
● Starting from the last days of September, the U.S. Dollar Index (DXY) has been trading within a sideways channel. Macroeconomic data released last week did not provide a clear advantage to either the U.S. or the European currency. On Tuesday, October 17, U.S. retail sales data was published, showing a monthly increase of 0.7%. Although this figure was lower than the previous 0.8%, it substantially exceeded the market’s average forecast of 0.3%. On the same day, the ZEW Economic Sentiment Index for the Eurozone was also released, outperforming expectations with a reading of 2.3, considerably better than the forecast of -8, and marking a full rebound from the previous negative figure of -8.9.
On Wednesday, October 18, revised data on consumer inflation in the Eurozone was released. The September Consumer Price Index (CPI) matched the forecast and was ultimately assessed at 4.3% year-on-year (YoY), compared to 5.2% the previous month. On Thursday, October 19, the number of initial jobless claims in the U.S. came in at 198K, surpassing expectations and falling below both the prior figure of 211K and the market forecast of 212K.
● Taking a broader view of the U.S. economy, we generally observe strong employment and GDP growth rates, a deceleration in inflation, increased consumer activity, and a real estate market that remains relatively stable despite rising mortgage rates. All these factors point to the appropriateness of another rate hike, which should, in turn, push the DXY higher. However, based on statements from Federal Reserve officials, it seems unlikely that a rate hike will occur at the upcoming Federal Open Market Committee (FOMC) meeting on November 1.
Specifically, Patrick Harker, President of the Federal Reserve Bank of Philadelphia, stated that economic pressure should not be created by increasing borrowing costs. Echoing Harker’s sentiments, Lorie Logan, President of the Federal Reserve Bank of Dallas, noted that although “desired progress is being observed in the fight against inflation, it is still too high.” She added that “the economy continues to demonstrate strong performance, and labour markets remain tight,” yet “the Fed still has some time to observe the economy and markets before making a decision on monetary policy.”.
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● Undoubtedly, the most significant day of the past week was Monday, October 16. On this day, the bitcoin price soared to $30,102 before plummeting to $27,728. Following BTC, other digital assets also saw a sharp price increase, followed by a steep decline. According to Coinglass data, the price surge led to the liquidation of over 33,000 trading positions, with traders incurring losses totalling $154 million. Of this amount, bitcoin accounted for $92.0 million in losses, Ethereum for $22.7 million, and Solana for $4.6 million.
The surge in quotations occurred after Cointelegraph published news that the U.S. Securities and Exchange Commission (SEC) had approved BlackRock’s application for a spot bitcoin exchange-traded fund (ETF). It was later revealed that the news was fake. Cointelegraph’s editorial team apologized for publishing the false news. The publication clarified that one of their staff had seen the news about the SEC’s approval of the BTC-ETF on Platform X (previously Twitter) and decided to publish it as quickly as possible without fact-checking or obtaining editorial approval. Representatives from the Commission also noted that “the best source of information about the SEC is the SEC itself” and advised users to “be cautious about what they read online.”.
● To understand this issue more deeply, it’s helpful to look back to its origins in 2021. That year, a series of companies submitted applications to create such funds. Three years ago, Bitwise Chief Investment Officer Matt Hougan explained that cryptocurrency futures ETFs are not particularly suitable for long-term investors due to high ancillary costs. It is only when spot bitcoin exchange-traded funds become available that institutional investors will begin large-scale capital inflows.
For clarification: A spot BTC-ETF is a fund whose shares are traded on an exchange, and which tracks the market, or spot price, of bitcoin. The primary idea behind such ETFs is to give institutional investors access to bitcoin trading without physically owning the asset, through a regulated and financially familiar product.
● All applications submitted to the SEC in 2021 were rejected, leading to a hiatus that was interrupted on June 15, 2023. On that day, the situation dramatically changed: the financial world was abuzz with the news that investment giant BlackRock had submitted its application for a spot bitcoin trust. In an interview with Bloomberg, Hougan heralded the dawn of a new era. He stated, “We now have BlackRock raising the flag and declaring that bitcoin matters: that it is an asset institutional investors want to invest in. I believe we have entered a new era in cryptocurrency, which I call the foundational era, and I expect a multi-year bull trend that is just beginning.”
Under the banner raised by BlackRock, seven more leading financial institutions also submitted similar applications to the SEC. Among them were global asset managers like Invesco and Fidelity, who, experts believe, have the capacity to absorb trillions of dollars. The ninth on the list was the asset management company GlobalX. They, along with several other financial giants, had entered the ETF race back in 2021, but were then thwarted by the SEC. Now, in August 2023, GlobalX made another attempt.
● Owing to the initiatives of these investment titans, bitcoin experienced a meteoric rise starting in the latter half of June. It shattered the $25,000 resistance barrier, soared beyond $30,000, and peaked at $31,388 on June 23. This resulted in a weekly gain exceeding 26%. Following bitcoin’s lead, altcoins like Ethereum also saw significant upward movement, registering approximately a 19% increase during the same period. However, due to subsequent regulatory pressures from the SEC and actions by the U.S. Federal Reserve, along with other negative news, the BTC/USD trading pair began to decline. It reached a low point of $24,296 on August 17.
● And now, two months later, we see another surge and subsequent drop. What’s next? It’s a pertinent question, as the approval of spot bitcoin ETFs is expected to unleash a significant wave of adoption of this asset class by institutional investors. According to analysts at CryptoQuant, this could quickly propel the market capitalization of the crypto space by $1 trillion. In their opinion, the odds of this happening have significantly increased following the legal victories of Ripple and Grayscale against the SEC. Bloomberg analysts currently estimate these odds at 90%.
It’s worth noting that the deadline for the SEC’s decisions on the applications from BlackRock and other companies will arrive in March 2024. However, Mike Novogratz, the CEO of Galaxy Investment, believes that spot bitcoin ETFs could become a reality as early as this year. Larry Fink, the head of BlackRock, declined to comment on the status of their application but added that the October 16 rally was driven not so much by rumours of its approval but rather by a desire among people to use quality assets, which he believes includes bitcoin, gold, and Treasury bonds.
● Anthony Scaramucci, founder of SkyBridge Capital and former White House Communications Director, believes that the leading cryptocurrency is “in many ways even more valuable than gold,” and could “easily” achieve a market capitalization of $15 trillion. According to his calculations, such a capitalization would propel the price of bitcoin to approximately $700,000.
Scaramucci asserts that the current financial system is “broken.” “Strange things could happen when you see countries that are hostile to the U.S. trading in bitcoin or other assets to distance themselves from the dollar. This is because the United States has used its currency to assert its own geopolitical will,” he said.
● Opinions within the crypto industry regarding the near-term future of bitcoin (BTC) are divided. A study conducted by Finbold revealed that a substantial number of experts do not rule out the possibility of BTC/USD climbing to $100,000 or even $200,000. Finbold specialists also sought forecasts from the artificial intelligence PricePredictions. According to AI calculations, after the approval of a bitcoin ETF, the flagship crypto asset could swiftly reach the $100,000 range. PricePredictions noted that additional factors like mainstream bitcoin adoption, institutional investor actions, regulatory activity, and overall macroeconomic conditions will be significant.
Trader, analyst, and founder of venture firm Eight, Michael Van De Poppe, believes that the October 16th fake news will not hinder the cryptocurrency’s growth. According to his observations, the coin has already entered a phase of positive momentum. “The trend is already upward. The lows we’re seeing now offer a buying opportunity. A bitcoin ETF will eventually enter the market; it’s just not happening today,” said the Eight CEO.
Authors of the analytical channel Root in X (formerly known as “Twitter”) also think that the fake news did not exert significant pressure on the cryptocurrency. In their opinion, the coin’s pump, despite the subsequent correction, has actually helped improve its position. However, there is also a sizable portion of the crypto community that supports a bearish outlook, suggesting the coin could drop to the $19,000-$23,000 range.
● On Friday, October 20, BTC/USD made another attempt to breach the $30,000 mark, reaching a high of $30,207 before retreating. At the time of writing this overview, it is trading at $29,570. The overall market capitalization of the crypto market stands at $1.120 trillion, up from $1.046 trillion a week ago. The Crypto Fear & Greed Index has risen over the week from 44 to 53 points, moving from the ‘Fear’ zone into the ‘Neutral’ zone.
NordFX Analytical Group
Notice: These materials are not investment recommendations or guidelines for working in financial markets and are intended for informational purposes only. Trading in financial markets is risky and can result in a complete loss of deposited funds.
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