Digital Assets Morning Call: July 20, 2022

Written by Robert Lynch
on July 20, 2022

Recent crypto rally continues; Eurozone developments bear monitoring

Bitcoin and Ether extend gains

Complications and difficulties build for Europe

Eurozone economic and currency developments have implications for digital assets

On the charts:

The price action in major crypto tokens continues to be among the most important and noteworthy developments in the crypto space this week. Bitcoin (BTC-USD) has pushed above $23,000 and is further retracing or filling the steep price decline, or “gap,” from mid-June that extends from approximately $28,000 to $21,000. That $28,000 level markets the next upside target or resistance. Ether (ETH-USD) has gone further in filling its mid-June gap, which we see from approximately $1,700 to $1,000. And the $1,700 level is the next target/resistance for that token price.

ETH/BTC pulls back from potentially important resistance

Yesterday we discussed the Ether/Bitcoin (ETH/BTC) cross, which had surged some 35% in a week from 0.050 to 0.070. In so doing it has also crossed above the 50-day, 100-day and 200-day moving averages (the latter only temporarily thus far). We noted that it was quickly approaching resistance nearby at 0.0715, defined by the downtrend drawn off of the 0.0886 high from December 2021. After trading to 0.071 yesterday, ETH/BTC has in fact pulled back below 0.068 today, suggesting some other market participants have also attached significance (and in this case some selling interest) to that chart point.

Crypto gains come alongside those in risk assets

It’s useful to recognize that the latest gains in crypto have come alongside renewed gains in risk assets, with the Nasdaq Composite Index rising 3.1% yesterday. Today, the futures are closer to flat ahead of the cash market open. But the price action highlights that there continues to be a reasonable correlation between risk assets and major crypto token prices over time, even if that correlation tends to be less robust on occasion.

Eurozone developments to monitor

European developments in the coming days could have important implications for the global macro backdrop. The Eurozone group of countries make up the world’s second largest economy and its output has significant implications for global economic growth. Global growth trends are an important input for investment returns generally, which will also have implications for digital asset performance.

Russian gas and European energy shortages

Financial market participants are focused on Russian gas supplies to Europe, with specific attention on the planned reopening of the Nord Stream natural gas pipeline tomorrow (Thursday) which had been shut down for maintenance. A severe European heatwave is already increasing the demand for energy, and if the pipeline reopening is delayed, it could cause [further] energy rationing in a manner that will negatively impact economic growth in the region.

Italian political and economic stresses

Second, Italy is in the midst of [another] political crisis, with Prime Minister Draghi potentially stepping down amid diminished support among the previous coalition government. While political drama in Italy is not new, the current timing is more problematic given the stresses imposed by high inflation, the war in Ukraine, energy shortages and, as explained below, the pending tightening in Eurozone monetary policy.

ECB to tighten policy, but how much

Third, the European Central Bank (ECB) meets Thursday and is expected to raise its policy rates by at least 25 bp and may consider a more aggressive 50 basis point move (according to a Reuters report Tuesday). Note that the current key policy rate is -0.5%, so a 50bp rate hike would lift it out of negative territory for the first time since 2014.

The ECB is attempting to balance the very serious need to get inflation under control but to do so without damaging weakened economies, like Italy. It is no easy task and the notion that the Italy may limit the extent of ECB tightening is a factor weighing on the euro.

Euro weakness translates into US dollar strength…an important consideration for crypto token prices

The euro’s decline has, by definition, resulted in a stronger US dollar. While just off its recent highs, the dollar continues to trade at exceptionally strong levels and its movements remain an important factor for crypto markets to monitor.

The idea that bitcoin can be a hedge against US dollar weakness works in reverse when the dollar is strengthening, as has been the case this year. Hence, we will continue to monitor and anticipate dollar movements as a potential support (if it falls) or headwind (if it strengthens further) for bitcoin in the coming weeks and months.

Original source: www.einpresswire.com/sources/u466736

Disclaimer:

Digital Asset Morning Call is for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by ALT 5 Sigma (“ALT 5”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. ALT 5 Sigma. makes no representation or warranty to any investor regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. ALT 5 Sigma does not solicit or provide any financial advice. This is at the sole discretion of the individual.

Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.