Bitcoin

Cryptocurrencies are retreating from recent record highs as the sell-off on the Nasdaq gains strength and concerns around a slowing US economy have increased. A weakening consumer could mean lower risk appetite and a narrower range of potentially interested buyers of speculative assets. A recession would likely do nothing good for the crypto market. With its declining reaction in recent days, bitcoin has confirmed that its role as a recession or banking crisis hedging asset is still uncertain. Is the king of cryptocurrencies in for a trend change?

A change in the crypto trend?

The on-chain market sentiment vector is pointing to levels close to greed, which could signal an impending correction. It's also worth noting that BTC's volatility has been drying up in recent days, which has historically heralded an imminent, sudden price movement.

Looking at the chart of BITCOIN on the D1 interval, we can see that the RSI indicator has risen since the beginning of the year, but since then it has been recording lower and lower levels, although the price of the largest cryptocurrency has been steadily rising. This phenomenon is called a bearish divergence, and it can signify the weakening strength of buyers and a change in the trend. The closest support level for declines is the 23.6 Fibonacci retracement of the upward wave initiated on March 11, when the cryptocurrency rebounded sharply amid the collapsing SVB.

Ethereum

Sentiment in the cryptocurrency market remains mixed, with major projects moving in a sideways trend. Investors are concerned that Ethereum's correction after the Shapella upgrade will result in more sell-offs.

What after the Shapella Upgrade?

Since December 2020, investors have been able to deposit their ETH on the Ethereum Beacon chain and receive blockchain rewards and profits. However, they couldn't withdraw those funds until the recent upgrade. So far, the declines after the Shapella are relatively small;

Before the update, all staked ETH was worth nearly $32 billion (about 15% of supply). According to K33 Research, even with small withdrawals, about $2.4 billion in ETH could hit the market as investors will want to withdraw some funds from the Beacon chain. With crypto market liquidity drying up, this could trigger a deeper correction;

On the other hand, Bernstein Fund analysts pointed out that of the 18 million ETH staked, nearly 70% were locked into liquidity protocols, allowing investors to de facto trade funds through decentralized Lido-type protocols, which will take off much of the downward pressure.

According to analysts, the 30% of investors who deposited ETH in the Beacon chain without using liquidity protocols are likely to have the highest level of conviction and will not be willing to sell. It is also worth noting that the seamless ability to deposit and withdraw ETH may encourage more investors to staking and drive capital flowing into the chain;

Passive ETH returns of 5 or 6% per year are no longer as attractive compared to the 0 interest rate period, when investors could not count on comparable yields from regulated fixed income assets. In addition, staking is to some extent subject to risks associated with crypto market regulation. Rewards for ETH staking will decline as the number of stakers increases.

News

According to the Block 'open interest' report, the ETH options market (call options vs. put options) before the update showed the highest level since May signaling possible downward pressure

The U.S. Treasury Department has indicated that the decentralized asset market poses a threat to national security.

Divly revealed a report according to which only 1.62% of US cryptocurrency holders paid tax on their investments. The report is disputed by tax law specialists;

According to Bloomberg, Singaupur's central bank is working to unify cryptocurrency-friendly regulations

According to a survey by CoinGecko and Blockchain Research, 75% of cryptocurrency investors hold NFTs

Ethereum chart, H4 interval. Looking at the chart, we can see that the price reached before the Shapell update was roughly similar to the peak of the price rally before the Ethereum Merge. If the declines accelerate the key for the price could be the demand reaction around $1700 zone, where we can see SMA200 (red line), 23.6 Fibonacci retracement of the upward wave started last June and previous important price reactions.

3 Markets to Watch

Investors that will be returning to the markets after Easter holidays and will face a number of top-tier market events in the week ahead. Rate decision from the Bank of Canada, Q1 earnings from major US banks as well as FOMC minutes and US inflation data are highlights in this week's calendar. Be sure to watch GOLD, US500 and USDCAD in the week ahead.

GOLD

A number of top-tier data releases from the United States will be offered to investors this week, including CPI for March (Wednesday, 1:30 pm BST), FOMC minutes (Wednesday, 7:00 pm BST) as well as retail sales for March (Friday, 1:30 pm BST). All of those may shed light on what Fed does next - is a 25 bp rate hike in May still in play or will the Fed pause the rate hike cycle? Higher CPI reading and poor retail sales data may see dovish bets in the markets increase. This, in turn, may help gold look towards highs in the $2,060 per ounce area.

US500

Wall Street earnings season for Q1 2023 will begin this Friday with the release of reports from major US banks. JPMorgan, Wells Fargo and Citigroup are set to report their financials before the opening of the Wall Street session on Friday. Beats and misses in results will be company-specific but investors are also likely to be offered hints on an issue with more broad-based implications - impact of recent banking turmoil on the economy, businesses and credit action. Recent data from the Dallas Fed showed signs of a crunch in consumer loans.Confirmation that deterioration in credit action is indeed taking place may deteriorate market moods.

USDCAD

USDCAD will be one of the FX to watch on Wednesday. Not only because US CPI data for March and FOMC minutes will be released but also because the Bank of Canada is set to announce the rate decision at 3:00 pm BST. No cut is expected as the Bank of Canada strongly hinted that the rate hike cycle is over. However, wage growth in Canada remains elevated, which should exert upward pressure on inflation. Having said that, some hawkish remarks may be offered by BoC.

Oil

Oil prices are stabilizing after the big price jump last week in response to OPEC+ decided to further cut production. The volatility decreased significantly as demand uncertainty in China and US offsets OPEC+ production cut. Of course, we could notice a further inventory draw last week but perspective of future demand is cloudy as the chance for the next interest rate hike is increasing.

As we can see the price range from the Monday a week ago is less than 3 dollars. The most important support is at 79.00 USD per barrel that is also a higher limit of bullish gap. On the other hand the nearest resistance lies at 82 USD per barrel that is also a higher limit of consolidation that starter on 1st December. In case of breaking the mentioned support, the price may decrease even to vicinity of 75 USD per barrel which is also a lower limit of the bullish gap.

Bitcoin Jumps above $30,000

Sentiment towards cryptocurrencies following Easter holidays is positive with major coins as well as smaller altcoins trading higher. Bitcoin is drawing a lot of attention today as the coin is testing a psychological $30,000 area and is trading at the highest level since early-June 2022. Bitcoin has already gained more than 90% off the early-November 2022 low. A near-term level to watch is the resistance zone ranging below $31,500, which marked the upper limit of a short-term trading range in May-June 2022.

BITCOIN trades above $30,000 for the first time since June 2022.

DE30

European stock market indices launched the first cash trading session after Easter break higher. Blue chips indices from Western Europe trade 0.5-1.0% higher, following an upbeat Asian session earlier today. However, part of gains has been erased already with DAX dropping back below 15,700 pts. Taking a look at DAX futures at H1 interval (DE30) we can see that bulls failed to break above 15,900 pts area and a double top has been painted. Today's bullish price gap has been filled already and should ongoing pullback deepen further, the 15,650 pts support zone will be the first potential target for sellers. This zone is not only marked with previous price reactions but also with the neckline of the aforementioned double top. Textbook range of the downside breakout from this pattern shows a possibility of a drop to as low as 15,360 pts.

US Index

US Dollar weakened after International Monetary Fund's (IMF) global economy outlook report, and the current US situation at the Washington summit was also commented by US Treasury Secretary Janet Yellen. The content of the commentary was in line with what today's Axios analysis and didn't surprised financial markets. Yellen emphasized the resilience and strength of the U.S. economy and the stability of the banking sector but the comment failed to help the dollar index (USDIDX).

The situation in the US economy was again commented on by John C. Williams, head of the New York Fed. The dollar index is weakening as investors following the IMF analysis saw the Fed's rate hike cycle coming to an end which may herald the lack of significant support for the dollar's strength that has been building since 2022, with US systemic uncertainty in the background. Although the chances of a hike in May increased after the NFP data, its fate is still uncertain and its impact on USD strength almost 'theoretical'.

IMF

IMF head of markets research Gourinchas conveyed that the Fed, the European Central Bank and the Bank of England are nearing the end of their rate hike cycles;

The IMF expects U.S. economic growth to reach 1.6% in 2023, compared to the 1.4% estimated in January, and  1.1% y/y growth in 2024 (a staggered slowdown).

Yellen
The banking system in the United States is healthy, with strong capital and liquidity positions, the global financial system is resilient;

Given the war in Ukraine and recent pressures on banking systems, we remain cautious on inflation risks;
Price pressures in the United States remain excessive, but have declined over the past six months.

Fed Williams

I don't think we need to change our balance sheet policy in the near term. QT is proceeding at a rapid pace;

The banking system has really stabilized after the last crisis. If inflation falls, we will have to lower interest rates.

One more rate hike is reasonable but we will watch the data including retail sales and CPI inflation;

If inflation becomes more persistent, we will have to adjust policy accordingly;

Bank failures have increased uncertainty about the outlook. We need to see a decline in core inflation;

We have brought policy to a restrictive level. The impact of the credit turmoil in the banks is uncertain and it is too early to estimate its impact.

USDIDX chart, H4 interval. The dollar index reacted by falling below the 38.2 Fibonacci retracement of the wave started in Q1 2021, near 105 points. Since mid-March, when investors learned the extent of the banking sector's problems, the bulls have had a clear problem with rising above the SMA100 (black line).

AUDJPY

Indices on Wall Street ended yesterday's session in mixed sentiment. Investor sentiment was weighed down primarily by uncertainty over the US CPI inflation reading scheduled for today, which will be one of the final key clues creating the FOMC's decision at its next meeting in May.

The S&P 500 ended trading unchanged on a daily basis. The Dow Jones gained 0.29%, and the Russell 2000 small-cap index gained 0.8%. The Nasdaq index of technology companies was the weakest performer, losing 0.43%.

Asia-Pacific indices traded mostly higher - the Nikkei gained 0.6%, the S&P/ASX 200 gained 0.4%, the Kospi gained 0.2% and the Nifty 50 traded 0.15% higher.

In the FX market, we are seeing capital outflows to the currencies of the antipodes, namely the New Zealand dollar and the Australian dollar. The EURUSD pair is trading slightly up and testing the resistance zone at 1.093. At the moment, the Japanese yen and the US dollar are experiencing the biggest declines.

Federal Reserve and ECB bankers have warned that we may see elevated inflationary pressures all the time, current inflation targets should remain in place, and higher interest rates may be present for an extended period.

Wells Fargo warned that the S&P500 index could experience a near 10% correction due to deteriorating economic conditions in the US.

Elon Musk stated that Twitter will be a profitable business as early as next quarter.

Yields on Chinese 10-year Treasury bonds fell to their lowest levels since November 2022, due to increased expectations of continued interest rate cuts in the country. Yesterday, China reported a sharp decline in inflation growth to 0.7%, compared to an earlier reading of 1%.

An index measuring construction activity in China in March reached its highest level in more than a decade.

Deutsche Bank analysts expect Bank of Japan Governor Ueda to end the YCC in 2 weeks.

Australian weekly consumer confidence surprised on the upside with a reading of 79.3 (previously 78.2).

The lower house of the Swiss parliament rejects a CHF 109 billion bailout package for Credit Suisse.

Energy commodities are trading at mixed levels this morning. WTI crude oil is gaining 0.21%, while natural gas is off 1.0%.

Gold continues its recent upward momentum and is currently breaking out above the 2019 USD level.

There is weak sentiment in the cryptocurrency market. Bitcoin is currently losing nearly 1%, and Ethereum is losing 1.5%.

EURUSD

The US CPI report for March was released today at 1:30 pm BST. Report was expected to show a steep deceleration in headline price growth as well as slight acceleration in core measure. However, as headline CPI was expected to drop below core CPI for the first time since late-2020, it was the core gauge that was especially on watch today.

Actual report showed headline inflation more than expected, from 6.0% to 5.0% YoY, while core gauge matched expectations by accelerating to 5.6% YoY. It looks like investors acted on softer headline reading with market reaction being clearly dovish - USD slumped while US index futures jumped.

Markets odds for a 25 basis point Fed rate hike at May meeting dropped from around 73% prior to data release to around 60% now.

US, CPI inflation for March

Headline (annual): 5.0% YoY vs 5.2% YoY expected (6.0% YoY previously)
Headline (monthly): 0.1% MoM vs 0.2% MoM expected
Core (annual): 5.6% YoY vs 5.6% YoY expected (5.5% YoY previously)
Core (monthly): 0.4% YoY vs 0.4% MoM expected

Headline US CPI inflation slowed below the pace of core US CPI inflation in March.

EURUSD jumped above April 4 highs following softer than expected US CPI data for March.

US500 caught a bid following US CPI data and is attempting to make a break above the resistance zone ranging between 50% retracement and 4,165 pts mark.

Oil

Official US report on oil inventories was released today at 3:30 pm BST. API estimates released yesterday pointed to an unexpected 0.38 million barrel build (exp. -1.3 mb). However, a Department of Energy report showed that US oil inventories actually grew over the past week by 0.6 million barrels. Gasoline and distillate inventories dropped less than expected. Market reaction was fairly muted with oil trading little changed in the first minutes after release.

US oil inventories

Oil inventories: +0.60 mb vs -1.3 mb expected (API: +0.38 mb)
Gasoline inventories: -0.61 mb vs -1.5 mb expected (API: +0.45 mb)
Distillate inventories: -0.33 mb vs -0.7 mb expected (API: -1.98 mb)

While oil has been fairly muted following the release of DOE data, crude prices are on the rise today. Brent (OIL) is attempting to make a break above the upper limit of the Overbalance structure in the $87.00 per barrel area.

NATGAS

US natural gas prices took a hit yesterday as analysts mounted their calls that the end of the heating season in the United States is near. While recent weather forecasts pointed to a period of below-average temperatures, average temperatures in this period of the year are usually high enough for demand for heating to drop significantly. Expectations for today's EIA natural gas storage report (3:30 pm BST) also strongly hint that the heating season in the US is drawing to close - median estimate is for a 25 billion cubic feet increase in stockpiles. If confirmed, this would be the second inventory build of 2023 and the first one since mid-January.

Taking a look at NATGAS chart at H4 interval, we can see that price has halted recent upward correction at the resistance zone marked with $2.24 handle and the 23.6% retracement of the downward move launched at the beginning of March 2023. Price launched a pullback and move back to the $2.08 per MMBTu. After a few hours of struggle in the area, sellers managed to push the price below the $2.08 mark this morning. Volatility on the NATGAS market is likely to be elevated around 3:30 pm BST when the EIA report is released. Should analysts be mistaken with their forecasts and US natural gas inventories actually drop, NATGAS could see a price spike.