Major event warning
- CPI data for Nov at 8:30 AM EST. This will be very important as it is one day before the FOMC meeting. It is expected to come in at 7.3% increase YoY.
- Federal Reserve announces interest rate decision for December. The last rate decision in 2022 and will likely have guidance for 2023. 75% probability of 50 bp hike and 25% probability of 25 bp hike.
- U.S. retail sales MoM -0.1% change expected
- BoE interest rate decision
- Initial jobless claims: important metrics to determine employment strength
Bias: Long-term Bearish, Medium-term Slight-Bullish
The painful sideways grind continues! Who would’ve thought another week of sideways action between the $16,800 support and $17,300 resistance. We are stuck in this tight 3% range on BTC. Anyone who is trading this range is likely to get stopped or simply stuck in their trade, not making any profits. Luckily our newly released BTC rapid-flying wheel was made for these conditions. It has already generated 9% returns in the past 3 weeks.
Being stuck in a range, there are not many developments in the technical aspect of BTC’s chart. The one thing that we saw is the higher low that was formed at $16,900, showing buyers are stepping in faster and further away from its range low support of $16,700. This is on a very short time frame, so I would give this bullish sign very little weight. This week’s main focus is the macro data coming out, Tuesday’s CPI numbers, and the FOMC rate decision on Wednesday. As shown in the past, these macro events could be the catalyst to help us break out of technical levels and set up trends either to the downside or upside.
- 7% – 7.2% CPI data: This will likely drive BTC over the $17,300 resistance, and I could easily see us revisiting $18,000, the overall previous YTD low. We had a similar reaction last month, with traditional equities having a huge rally after a softer-than-expected CPI.
- 7.3% – 7.4% CPI data: Probably muted response in terms of volatility. It will likely come down to Powell’s press conference and 2023 interest rate outlook to determine direction.
- 7.4% – 7.8% CPI data: Completely opposite reaction to scenario 1. If we completely miss the expected CPI data, we will easily break down $16,900 and revisit the $15,500 low. The situation could change depending on the FOMC statement and Powell’s press conference.
- 75 bp rate increase: This is not the expected outcome, and in the unlikely chance the Fed chooses to increase rates by 75 bp, we will see BTC break down to the downside and revisit $15,500. Does not matter what the CPI data says.
1. CPI Inflation Data
On December 12th, the United States will announce the CPI for November. Since the Fed’s top priority is curbing inflation, this is the month’s most important economic data. Barclay Bank compared the performance of the S&P 500 against 10 major economic indicators and found that risk assets have had the most negative response to the CPI in nearly 10 years this year. However, in the previous month, the CPI data surprised to the downside showing inflation decreased more than expected which drove the market rally. The market is expecting a 0.4% decrease compared to the month before.
This is the opposite of the expectations for the PPI, which were ridiculously low, as the expectations were 1.3% lower than last month. So if the data surprise to the downside again, that’s going to give a positive outlook for the markets and drive the Santa rally that lots of people are expecting towards year-end.
2. FOMC Rate Decision Meeting
On December 13th, Eastern Time, the Federal Reserve will announce its latest interest rate decision. The market expects the Federal Reserve to raise interest rates by 50 basis points. According to traders, it has a 75% probability. If we get a 75 basis point increase, you can, without a doubt, expect a huge downside move in reaction. This would signal to the market that, given the data, the Fed is asleep at the wheel and keeping the pressure on the markets even though inflation is subsiding. However, this scenario is unlikely to happen, and no matter what data we get from the CPI, the decision is likely made already. We are focusing on Chairman Powell’s press conference half an hour after the interest rate decision. He will give guidance on the future policy direction and may slow down his aggressive rate hike pace in consideration of economic recession factors.
Two weeks ago, Chairman Powell said at a conference that it might be time to consider slowing the pace of rate hikes as early as December. This is also supported by the recent PPI data, which came in at 7.4% increase YoY, 0.7% lower than last month’s increase. We expect CPI to come in at expectation or slightly above, so the data will support this 50 basis point rise. Therefore, if the Fed still gives hawkish future guidance at that time, it will contradict market expectations. Every time the interest rate hike expectations and the market interest rate cut expectations do not match, the market responds with large moves. We expect a downward move if the Fed stays hawkish in this case.
This week, we will look at the path of inflation and how commodities show that a decrease in the inflation rate is in the books for 2023. Commodities are often a large driver of inflation, and we see a high correlation in the data between commodity prices and inflation. So due to the large declines in the YoY% change of the CRB index (index of commodities), we foresee inflation following the trend and continue coming down throughout 2023. Crude oil prices and many other manufacturing metals that are often associated with growth are also 30-70% off their 52-week highs. This does not look inflationary to me. It either represents a deflation environment or demands destruction due to a lack of consumer demand.
However, just because inflation is coming back down does not mean the economy is fixed. Inflation is the main issue to be fixed, but the damage caused by interest rates and a slowing global economy will be the resulting issues. Chairman Powell has reiterated that “restoring price stability will require holding policy at a restrictive level for some time… We will stay the course until the job is done.” We expect interest rates to be high until inflation is below the 2% target rate or unemployment doubles. Both of these will undoubtedly throw the economy into a recession.
Economic data drives fundamental moves. The ISM manufacturing PMI acts as a barometer for the health of the manufacturing sector in the United States and has proven to hit bottom approximately 1 – 2 months ahead of the equities market. So yes, economics drive the stock market at large when large pivots happen in the economy. However, there is a lot of false noise between these critical pivot points. Looking at the PM, it is on a steady downtrend and has not shown any signs of a bottom.
Flying Wheel Strategy | High Yield – Medium Risk
The flying-wheel strategy has been performing insanely well in these market conditions. Unfortunately, our recommendation last week was forced to close after 3 rounds due to not having a product that met our criteria. However, if you did not select to invest only when a product with over 50% APY was available, you would have profited over 2% in the past week. Due to my selection, we could only generate 0.6% in 3 days, which is still not a bad return!
I would wait until after Wednesday’s FOMC meeting to open up this bot. Due to the increased volatility and directional change from macro events, it is not a good time to start a bot that benefits from sideways consolidation. Because I will not be giving an update until next week, check out the copy trade feature on the app’s home page. Yield-Master has a great high-speed flying wheel open which has returned over 9% in the past 3 weeks! This is a high-risk strategy because it selects an extremely close strike to the spot price. But due to this, it also generates extremely high yields of > 100%. So if the market is still within its trading range after the macro events this week, I recommend using the copy trade feature!
Structured Products | Medium Yield – Low-Risk
We have received the ETH yield! This week I have no recommendations for structured product orders due to CPI data and the FOMC meeting in the next 2 days. I will instead be writing a separate article on recommendations later this week after the events. I will try to lock in high yields with structured products, given we get high volatility. It will be posted on the Pionex Twitter, so be sure to watch out for that!