The Fed and the jobs report
The Fed and the jobs report
Will JPow do what everyone is expecting? And what will the jobs report say?
This will be a busy week in terms of potential market-moving news. First up is the Fed on Wednesday, which is expected to post a 25 bps rate hike. This is continued deceleration from 75 bps in November to 50 bps in December and, now, 25 bps in February. The CME FedWatch Tool has a probability of the 25 bps hike, but for the first time now has a, very minimal, 1.1% probability of no rate hike. That would be a huge surprise if they were to come in flat, and with a little help from the jobs report on Friday, it could set the stage for an aggressive rally for risk assets through the month of February. As a heads up, Bitcoin has only seen two negative Februaries in its existence. So, this is definitely going to be a week worth paying attention to.
On Friday, the Non-Farm Payrolls report will be released. The concensus is for continued deceleration with expected job growth of 175,000. This is down from the 223,000 jobs print the previous month. If the jobs report is in-line with the concensus, or misses to the downside, we are likely to see a surge in risk assets.
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The US Dollar (DXY)
There’s no change in the forecast at this time. The DXY has printed sideways, for the most part, since last week. This local range is seeing the DXY rally into the EQ while Stoch RSI has rallied above 50. We could see the DXY target the local range resistance but that will likely be it for now. If we do see it breakout above the range resistance, then the previous range at the daily/weekly pivots confluence area should hold as resistance. Ultimately, I’m still looking at an initial longer-term target of the weekly S1 pivot around ~93.834.
Bitcoin (BTC/USD)
Price is finally pushing on the third target of the dragon pattern. This is the range of 23933-26040. Within that range, a breakout above 25214.57 will break the bearish market structure that has been in place since the ATH which formed 14 months ago. What that means is that the daily and weekly trends will no longer be considered bearish when looking at market structure. This would be another feather in the cap for bulls.
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Ethereum (ETH/USD)
Price has broken out impulsively above the hourly pivot. While doing so, it also broke out above the descending red resistance as the daily RSI did the same. Stoch RSI has reset into oversold, curled up, and crossed bullishly. It is nearing a breakout of oversold. Price remains range bound for the moment, but I believe we will see it breakout with an initial target of 1789. A rejection at that level should see a pullback to the hourly pivot before price catches a bid and rallies once more, breaking out higher again with a target of the ~2000 handle. My target right now is just shy of that at 1987.
S&P E-Minis Futures Contracts (ES1!)
I have two counts on the chart. My primary is in black and suggests that wave (5) is underway. Locally, wave 3 of (5) has a minimum expected target of 4873.25. However, there is also a possibility that the correctoin is still in progress and completing wave (X) of a (W)(X)(Y) correction. That scenario is likely to see the index rally above wave B to complete wave (X) before making a new low to finish wave (Y) of the correction. But this alternate scenario would still suggest that a new ATH is incoming after wave (Y) completes, so the supercycle top would still not be in yet.
Chart of the Week (FTM/USDT)
Fantom has been making some moves off the swing low. We have seen a rally of ~200% so far. If we can get an impulsive breakout above the 0.522 swing high, then I believe we are likely to see price action follow the path outlined in the chart. As always, there are no guarantees about price action but this one is definitely worth watching. If we happen to see a rejection in the local area, then we can expected a pullback to the descending channel resistance at the orange range of 0.3519-0.3883 before price catches a bid and rallies once more.
Final Thoughts
The CME FedWatch Tool is pricing in a very slight chance (1.1%) of the Fed going flat on Wednesday, rather than hiking. This is a significant move away from the 50 bps rate hike that everyone online is suggesting Powell will throw in to hurt the markets. I continue to believe that we are likely to see the 25 bps rate hike that we’ve been looking at for the past month. And that will set the stage for a strong February rally. Job growth should be in-line with expectation or surprise to the downside, which would add powder to the keg for risk assets.
Remember, markets are foward-looking and they are now focused on the pivot (I believe a pause is already priced in), since we’re seeing a strong deceleration. So, economic data that is in-line with continued decelearion expectations, or surprises to the downside, will let the market know that the Fed is likely to continue backing off which takes the interest rate pressure off market participants’ view of risk assets. But if you still need more support for the Fed pausing, and even pivoting before too much longer…
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