December 18 REX Wire Market Outlook
Crypto is not following other risk assets higher, instead putting in a much-needed correction.
Once again we kick of the new week with our regular roundup. The picture is becoming clearer with every passing day.
Last week's FOMC meeting and remarks from Jerome Powell have given the market the signal it needs to consolidate the existing trend. With the dollar firmly in a downtrend, nearly 5% off its October peak, risk assets are entering price discovery mode.
Gold remains above $2,000, while currencies including the euro and Sterling have strengthened considerably over the past two months. With the Federal Reserve leading the charge on interest rate cuts (as it did on raising rates), this is likely a secular trend that may continue for many months.
While risk assets are in general having a good week, there's at least one exception: Crypto.
Bitcoin Extends Correction
Following an eight-week run-up, bitcoin put in a local top around $45,000 and has since dropped back below $42,000, a critical area of support/resistance for various reasons.
There are two questions: How long will the correction last, and how deep will it be?
With the bullish sentiment building around the ETF, it's hard to believe prices will continue to fall for long, especially into January. And BTC has not yet retested the low of around $40,000 from last month. If it does so, then $36,000 or even $30-32k might come into play. Alternatively, if BTC does bottom here, then the $48,000 level would be the next natural target.
There is the nuclear option of ETF refusal, which would cause a sharp (if temporary) collapse in confidence. However, at this point, after the extensive work the SEC has put in with major financial institutions, that's not a likely outcome. The current correction is a natural move for an overbought market, and this is a natural level for it to occur.
Post ETF approval, but before launch (a period of possibly one to two months), we expect intense volatility.
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