The Federal Open Market Committee has surprised markets by speaking in dovish tones about the US and the global economy. While many people expect the Fed… and we examine the implications for the economy and Bitcoin. Meanwhile, the Bitcoin Price, along with Gold, continues advancing.
The layout of the article has changed. Bitcoin price analysis is now posted as the final section and updates made during the European and US sessions will be added after it, at the bottom of the article. The chronology of price development should be easier to follow. Links to the various sections are provided below. Feel free to give feedback and suggestions via the comments section.
The Federal Open Market Commitee
The Federal Open Market Committee (FOMC) is the executive committee of the US Federal Reserve Bank. The minutes of the FOMC’s monthly meeting are eagerly anticipated and carefully scrutinized by the markets for clues about economic direction from the world’s most powerful central bank. The Fed presently holds the starter-gun to global interest rate increases – if the Fed increases rates then the globe’s central banks must follow by necessity. Ironically, most central banks are not ready to do so, for example, the European Central Bank has only just begun experimenting with negative interest rates as a means of counteracting deflation.
No More Free Money
The fulcrum of the uneasy relationship between markets and the Fed, pivots around the matters of quantitative easing (dollar printing and devaluation) and interest rates. The Fed is obliged to conclude QE this month (October) and it means an end to life-support (free money and near 0% interest rates) for two critical patients, namely the stockmarket and the bond market.
Once QE has ended, the Fed will then begin raising interest rates to between 1.25% and 1.50% in late 2015 and between 2.75% and 3.0% in late 2016. Ironically, this will happen against the tide of an ailing business cycle. A component of the past five years’ QE program was to cut interest rates to near 0% in order to bolster business with cheap loans – a plan that the Fed insists has worked, but which remains unconfirmed by higher employment, increased productive output and the associated inflation.
Relax, We’ve Got This
The Fed’s officers have been maintaining dovish rhetoric (“forward guidance”) that they have the US economy under control; that productivity and unemployment are improving; and that there is nothing to worry about. Meanwhile, the market knows that there is everything to worry about: the production, unemployment and inflation figures are cooked and the Fed has none of the control it feigns – as confirmed recently the Fed is, in fact, at the behest of Wall Street.
If the Fed does not terminate QE – if it even flinches at the task – or if it downgrades rates expectations, then the markets will smell uncertainty and act accordingly. The danger is a decline in global stockmarkets and a mess in the Bond markets that could threaten forming a financial maelstrom.
Bitcoin is both a commodity and store of value. Several investment funds have earmarked millions of dollars for investment in Bitcoin, and it’s associated services. Some people remark that “millions of dollars” are peanuts in the trillion dollar landscape of investment banking, but remember: the Bitcoin market has a small market cap and relatively low liquidity. Even a modest $20mil can shift the Bitcoin exchange rate into silly numbers. Naturally, with their profitability as a priority, the funds are responsible enough not dump $20mil on the market all in one go. Their method of market entry is via a gradual (but persistent) trickle.
Depending on what the FOMC’s minutes, in the coming months, confirm about the Fed’s ending of QE and their rates expectations, a material change or mood shift in global markets will impact the US dollar, stocks and bonds. Wealth fleeing from these may find its way to funds that invest in Bitcoin, and the inflows will fuel the rally.
Gold continues advancing and is trading above $1,220 today
Selected Economic Data
- UK Asset Purchase Facility
- weight 2
- expected: 375B (previous: 375B)
- UK Official Bank Rate
- weight 2
- expected: 0.5% (previous: 0.5%)
- US Unemployment Claims
- weight 2
- expected: 291K (previous: 287K)
- EU ECB President Draghi Speaks
- weight 2
Bitcoin Price Analysis
Time of analysis: 03h00 UTC
Price has cleared the 20-period moving average (20MA) on the 4-hour chart by some margin. The 200MA currently runs through $416 overhead.
An immediate obstacle is the $365 horizontal support which may see a retracement. MACD and RSI are pushing into reverse diverged territory on the 4-hour chart with the smaller timeframe indicators (hourly and 15-minute) stretching to the max. It may be that a retrace pulls price back to the descending blue trendline or the 20MA – which are intersecting near $333.
Eventually, price should target the Fib extension at $390 as well as the red 200MA near $400. It’s unclear, at this stage, whether the advancing wave will complete near $400 and begin a larger retracement for wave 2 or whether the actual target of wave 1 is $460. It seems plausible that a buying surge could overshoot the 200MA, spike to $460 and then form wave 2 to the downside.
Wave 2 down is going to be slightly histrionic because second waves are almost always misconstrued as a resumption of the decline. Looking at the price action since Sunday’s low in the 15-minute chart (above) we can see that the wave formation is prone to deep correction. With the decline still fresh in its memory, the market collective is likely to sell-off deep towards the $275 bottom. Going below $300 won’t be a surprise.
Depending on the weight of their stones, traders should take profit close to $400 or have a stop-loss just below one of the support and resistance levels at $365, $375 or $390. Once wave 2 has turned back up we will find confirmation for getting in long with the trend.
Keep those buy orders near $260 and $200 open. So close to the bottom – and without confirmation of an uptrend in hand – there is no point in assuming that the bottom is “in”.
CCN hosts a summarized Economic Calendar showing the week’s main data releases.
Readers can follow Bitcoin price analysis updates each weekday on CCN. In-depth analysis articles are published every Sunday.
The writer is fully invested in Bitcoin via BTC-e and Bitfinex. Trade and Investment is risky but not as risky as some other things out there. Take care only to take action in the market when you are 100% sure of the outcome. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this Bitcoin price analysis report.