February 5 REX Wire Market Outlook

Bitcoin shows surprising strength, even as the DXY breaks upwards. Perhaps it has something to do with the banking sector?

Bitcoin has held $40k for ten weeks now.

The US and UK both held interest rates steady last week. Markets are eagerly awaiting cuts, forcing the Fed and Bank of England to calm expectations. Jay Powell specifically addressed the waning likelihood of a March rate cut, all but taking it off the table.

The reason? Inflation is heading in broadly the right direction, but the labor market is strong. The US saw the creation of 353,000 jobs in January, almost double the anticipated figure. There are concerns that might feed through into resurgent inflation.

The dollar rallied strongly on the idea that March (and possibly May) rate cuts might be no more than wishful thinking, pushing above 104. It's now at a critical juncture. Breaking resistance here would see further upside, but falling back to 101 would paint a head-and-shoulders pattern, indicating potentially significant downside.

TradingView, DXY
The dollar is at a crucial juncture.

Last week, New York Community Bancorp (NYCB) shocked Wall Street when it slashed its dividend, reported a surprise quarterly loss, and stashed millions for future loan losses. NYCB shares fell 37% on Wednesday and another 11% Thursday, dragging the rest of the sector down with it. Tech, on the other hand, is booming, with Amazon and Meta posting significant gains in pre-market trading.

Other big news from last week includes Elon Musk losing out on a $55 billion compensation package, and Hong Kong authorities ordering the liquidation of Evergrande. It won't be easy for investors to recover any money, given that a large portion of the company's assets are held in mainland China—as well as the fact that Evergrande's bonds are trading at around two cents on the dollar.

Bitcoin Stabilizes

Despite the unexpected jobs print and dollar strength, BTC rallied as the new week started, pushing back above $43,000. It has now closed 10 straight weeks above $40k.

Last week's ETF figures were promising. Although overall volumes have slowed somewhat, inflows are still extremely strong and GBTC selling has reduced. While the ETFs are only a small part of the market at present, they are an important bellwether for demand—current and future.

BTC has now consolidated in this range (roughly $40-45k) for two months. The longer it continues to do so, the less likely a move to the downside becomes. With the halving coming in two months, the narrative will now shift, following the post-ETF reset in sentiment.

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