August 28 REX Wire Market Outlook

The weekend's market action was dominated by the news from Jackson Hole, where bankers and economists gathered for the annual symposium. Overall, there were few surprises, but the message was, if anything, even stronger than expected:

• The work is likely not done on inflation
• The Fed is prepared to raise rates further if necessary
• Rates must be held high for as long as needed
• Inflation numbers are likely to look quite different by the end of the year
• Cuts are unlikely until at least some time in 2024

There were no firm commitments to raise rates further, or to lower them. What the Fed appears to want to avoid is allowing the market to assume that a pause is the same as a pivot. It's very much a "wait and see" approach, with the door open to another increase (probably of 25 bps), or else holding where we are. Powell wants to make it clear that lowering rates is the less-likely option through to the end of the year.

Market Reaction

Unsurprisingly, the dollar strengthened with this additional clarity, with the DXY now well above 104. The dollar has been trending upwards for six weeks, and is set to take out the highs of three months ago.

This puts downward pressure on almost everything else, since traders are more likely to funnel money into USD. However, the reaction was relatively muted. Compared to last year, Powell's stance was seen as far less hawkish.

Bitcoin struggled through the weekend without any further major move to the downside. It's currently trading just below $26,000, underneath all the important moving averages, but above the last line of defense at $25,000 (after which, another 20% drop to $20k comes into play). The Fear and Greed Index is currently registering Fear.

As things stand, traders do not see the current levels as attractive to buy. September is coming, and historically this tends to be one of the worst months for crypto. In fact, data from Coinglass shows that no other month posts such consistently bad results for bitcoin, even though the average drawdown isn't too bad.

It may not be all doom and gloom, though. The JP Morgan trading team believe that long positions have now mostly been unwound in the crypto market, meaning further downside moves are less likely.

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