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Expert Review: The season of rate hikes from the Fed and QE rollbacks accelerate

Mid-term Analytics by Olymp Trade Experts


Powell had his say and the markets worked on the principle of “buy on rumor…” The growth of indices was jump started by the Fed meeting on Wednesday. What can we expect going forward?

 

Weekly Trends

  • EUR/GBP  -1.69%. Trading down with $100 and a X500 multiplier, you could have easily made $845.
  • ETH/USD  -12.38%. Trading down with $100 and a X10 multiplier, you could have easily made $123.8.
  • Apple  +3.79%. Trading up with $100 and a X20 multiplier, you could have easily made $75.8.

 

Currency Markets

JPY declined slightly during the week. This was not surprising given that the Fed meeting has become a benchmark for most advanced economies. The decision to further increase the volume of tapering, coupled with the tightening of monetary policy, is an unambiguous signal that inflation risks are high. Therefore, it is possible that other central banks may pursue the same policy.

Exit from “safe havens” in this case seems to be quite logical for market participants. As a result during the week, USD/JPY gained 0.6%, EUR/JPY added 0.78%, and cross rates AUD/JPY and GBP/JPY increased by 1.3% and 1.15% respectively.


After the Open Markets Committee meeting on Wednesday, it was quite interesting to see what decision the BoE would make on Thursday. The BoE did not make us wait long at all, and they unexpectedly raised rates by 15 basis points. Moreover, the regulator announced that it was ready to further tighten monetary policy. CPI is expected to be around 6% next year.

From a technical point of view, the GBP/JPY pair on the “daily” chart tested a rather important support level at 149. A technical correction began with a breakdown of the first and second Fibonacci retracement levels of 23.6%, i.e. levels 151.15 and 38.2% Fibo-correction (level 152.50). We also have strong confirmations from key trend indicators including the intersection of the MACD lines with a simultaneous reversal of the Parabolic SAR that indicates the possibility of further upward movement for GBP.

Olymp Trade - GBP/JPY chart - Expert Review 2021.12.20
Fig. 1. GBP/JPY pair. 1D TF.

 

Stock Markets

At the beginning of last week, the stock market was declining due to the upcoming Fed meeting. Traders feared Powell’s rhetoric would be too hawkish. However, after Wednesday, the tension was lifted and the markets resumed their growth. As always, the main market law “buy the rumor – sell on news” worked here. What was voiced at the meeting of the open market committee?

  1. GDP. The estimate for 2021 was reduced from 5.9% to 5.5%, and 2022 increased from 3.8 to 4.0%.
  2. Inflation (Core PCE Inflation). The estimate for 2021 increased from 3.7% to 4.2%, and 2022 went from 2.3% to 2.7%.
  3. Unemployment. The estimate for 2021 reduced from 4.8% to 4.3%, and 2022 reduced from 3.8% to 3.5%.
  4. Key rate. THREE increases are planned in 2022 and another THREE increases in 2023.

Expert Review: The season of rate hikes from the Fed and QE rollbacks accelerate

Against this background, the Fed will increase the volume of tapering as planned up to $30 billion per month in January 2022.

As a result, we saw practically no change in key stock indices at the end of the week. The Dow Jones remained at 35,950 points, the Nasdaq 100 was trading at 16,300 points, and the S&P 500 was trading at about 4,700 points.

Expert Review by Olymp Trade - S&P 500 heat map - 2021.12.20
Fig. 3. S&P 500 heat map

The shares of Nvidia went quite green over the last week. The largest processor manufacturer added about 7.5%. In fact, this growth is more likely due to the increased volatility in securities. The stock first plunged to $272.5 and then began to rise again.

Fundamentally, the company’s financial performance is relatively stable. Revenue growth for 2020-2021 amounted to 52.7%. For 2019-2020, revenue decreased by 6.8%, but a year earlier the growth was around 20.6%. The company has rather low leverage indicators with the ratio of the company’s liabilities to all assets at only 41.3%, so for investors, the risks of investing in these shares from this point of view are minimal.

Meanwhile, the company’s benchmarks are prohibitively high. The P/E is 94.03. That is, it will take almost 100 years for investments in stocks to pay off. The dividend yield is not very interesting either, which is about 0.2% on average over five years.

From a technical point of view, Nvidia shares tested the strength of the 23.6% Fibonacci retracement level (i.e. $292 mark), after which an upward rebound followed. Now we need to count on the continuation of the bearish trend. Therefore, short positions in these shares look preferable for now.

 

Commodity Markets

The oil market is forecast to have a surplus. OPEC predicts that the surplus will increase by 1.1 million barrels per day. The forecasts for the surplus are as follows:

  • 400 thousand barrels per day in December 2021
  • 2.3 million barrels per day in January 2022
  • 3.7 million barrels per day in February 2022

Against this background, forecasts for the black gold market are shifting more and more into the pessimistic zone, and Commerzbank believes that in January next year the price of oil will be about $70 per barrel.

From a technical point of view, on 1D TF, the price of Brent crude oil has practically tested the 200 moving average ($71.90 level) and now we see attempts to resume growth again, but this growth is unlikely to take place. Rather, there is a high probability of the price dropping below the specified mark and returning to the $65 level.

Expert Review by Olymp Trade - Brent chart - 2021.12.20
Fig. 4. Brent oil. 1D TF.

Meanwhile, gold continues to fluctuate around $1,780 per troy ounce. The market is extremely flat. Unfortunately, we won’t likely be seeing new highs from this asset. The growing dollar, as well as Bitcoin, which is pulling the blanket onto its side, does not leave the gold bulls a chance for growth.

Expert Review by Olymp Trade - Gold Chart - 2021.12.20
Fig. 5. Gold. 1D TF.

 

Cryptocurrency Markets

The price of Bitcoin continues to decline. The main cryptocurrency has been in a local bearish trend since mid-November after BTC hit a new all-time high. Recently, some people believed that Bitcoin will surpass $100,000 by the end of the year. This data was indicated by the well known stock-to-flow (S2F) model. This was indirectly indicated by statistical data, according to which at the end of the year, Bitcoin usually showed a very strong positive trend. This dynamic usually changes by February, when the US tax period begins. However, this year the situation has changed. It is quite possible that this is a consequence of the maturation of the market.

Over the last 2 weeks, the asset has been trading in a slightly descending price range of $46,500-51,000. It is highly likely that the price will return to the $42,000 level, which it touched in early December and around which it consolidated in late September.

It will be possible to talk about a change in the trend only after the cryptocurrency has crossed the $54,000 mark. Divergence on the daily RSI indirectly confirms the possibility of growth in the short term.

Expert Review by Olymp Trade - Bitcoin chart - 2021.12.20
Fig. 6. Bitcoin. 1D TF.

The capitalization of the entire market has consolidated close to $2.3 trillion. At the same time, the daily trade turnover increased slightly and amounted to $115 billion.

Expert Review by Olymp Trade - Bitcoin metrics - 2021.12.20
Fig. 7. Bitcoin metrics

The fear and greed index did not change over the week and stopped at around 29 points. Retail traders are also in a state of uncertainty with bulls and bears split roughly 50/50. Market participants took a wait and see attitude. The BTC domination index has strengthened over the past week by 1% and is 39.3%.

On December 13, at block 714,000 in the Bitcoin network, miners mined exactly 90% of the total cryptocurrency supply. In total, 10% or about 2.1 million BTC remain to be mined.


Bloomberg strategist Mike McGlone believes that in 2022, the US will see massive adoption of cryptocurrencies. It will pass under the regulation of the cryptosphere and will cause a new wave of growth.

The cryptocurrency business is already actively trying to make friends with government authorities. In the first 9 months of this year alone, they spent about $5 million lobbying the US Senate. Coinbase allocated $600,000 for lobbying, and Square (Block after rebranding) contributed more than $1.7 million.

The IMF again sees “systemic” risks to financial stability from the growing cryptocurrency market, and they are calling for “comprehensive, consistent, and coordinated” regulation of the industry. It is very likely that this will be the main trend in the cryptosphere next year.

 

Conclusions

The market grew on the back of the Fed’s decision. However, the growth may be temporary. The oil market outlook is negative. Bitcoin has been consolidating all week and the main metrics for the cryptocurrency market have remained practically unchanged. Such consolidation means that an impulsive, volatile movement will soon begin in the crypto market.

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