February 1, 2023
Market Stalls Ahead of FOMC Meeting
Dear Subscriber,
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| By Alex Benfield |
Last year, the driving narrative was the Federal Reserve and its onslaught of rate hikes which scared investors and bulls away from the market.
The rising interest rates dried up cheap money and reduced demand for equities and cryptocurrencies alike.
In fact, interest rate hikes became tradeable events since they happened on a preplanned schedule.
Today is one of those scheduled days as the Federal Open Market Committee meeting minutes are set to be released this afternoon, which will disclose how much the Fed will raise rates this time around if they decide to at all.
The Fed raised interest rates by 4.25% in 2022, from about 0.08% all the way to about 4.33% as of yesterday. This all happened after two years of sustained rates below 0.10% to combat COVID-19’s effect on the economy.
Last year's rate hikes shocked markets around the world and had a dramatic effect on investments of all kinds. Money went from extremely cheap to the most expensive it’s been since 2007 in what seemed like the blink of an eye.
The last hike was in December 2022, with a 50-basis-point hike. This marked a slowdown on the Fed’s behalf, considering the previous four hikes had been 75 bps.
Many investors seem to believe the Fed will continue to slow down its rate hikes going forward as inflation has cooled off in most areas.
As a result, the market appears to be pricing in a 25-bps hike today, which could perhaps be the last hike in this aggressive stretch from the Fed.
Should the rate hike come in any higher than 25 bps, expect the markets to have a bearish reaction. This would indicate the Fed isn’t ready to slow down just yet and doesn’t plan to reverse course anytime soon.
A hike of 25 bps or lower will likely be well received by most markets and could be the green light many investors have been waiting for to deploy more capital.
Either way, I expect today’s news to be very impactful on the market.
As a side note, I know that at this point it must be annoying to keep hearing about the Fed and interest rates.
However, until the interest rate hikes come to a stop, they will continue to have a huge impact on markets. The sooner the hikes stop, the sooner markets are likely to rally.
So, let's look at some charts and analyze the potential impacts of today’s announcement.
Bitcoin (BTC, Tech/Adoption Grade “A-”) has been rocking over the last couple weeks.
It exploded above its orange downtrend line in mid-January with authority before hitting resistance at the green line. After testing that resistance level, BTC eventually broke through and pushed on to its current level of about $23,000, where it has remained for over a week.
Source: Coinbase.
Click here to see full-sized image.
Should the market react positively to the news from the Fed today, BTC could push onward to the next resistance level ahead, which is somewhere between $24,500–$25,000.
Make no mistake: Should Bitcoin break above $25,000, it would have major momentum behind it and could rally to much higher levels.
Meanwhile, Ethereum (ETH, Tech/Adoption Grade “B”) has given up some ground to Bitcoin since the start 2023.
It had been acting as the market leader in late 2022, but now ETH has struggled to cross above an important resistance level at $1,650. Its latest rally has paused near that level for over 10 days.
Source: Coinbase.
Click here to see full-sized image.
Perhaps some good news out of the Fed today could be the catalyst Ethereum needs to break that resistance and continue its rally.
Otherwise, should the rate hike scare off investors, ETH may sink back down toward support near $1,400.
We will find out soon enough.
What’s Next
The FOMC meeting minutes will not only disclose this month's new potential rate hike but will also give us a big hint as to what direction the crypto market will go in the next month or two.
If investors sense the Fed is slowing down or potentially ending the rate hikes soon, the market may extend this current rally to new highs.
However, if the news from today is taken negatively, this current rally will likely fade out and give way to more skittishness from investors as we round out the first quarter of 2023.
Looking at the charts of most major cryptocurrencies, it almost seems obvious that investors have been waiting over the past two weeks to see what the Fed will do today. If I’m right about that, then we can expect the market to move sharply upon today’s announcement.
Here’s hoping we get some good news out of the Fed today.
Best,
Alex
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