January 22 REX Wire Market Outlook

Central banks are reminding markets that rates may not be cut for months yet.

Will the Fed be forced to change its plans?

It has not been the best week for many global markets, especially China, with the Hang Seng down 5.6% and suffering a brutal 29% decline in the last year. In fact, the index's value has been more than cut in half since its highs six years ago.

In the US, it's a different story, as the S&P and other major indices pass their all-time highs and enter price discovery territory.

The DXY took a leg up last week but may now have hit a local top and be rolling over around 103; we'll see how that develops this week.

One reason for that slight extra strength is that, faced with inflation that just won't do as its told, central banks including the Fed, ECB, and BoE, are warning consumers that interest rates might need to remain where they are a little longer: Don't expect early cuts.

The UK in particular is floundering amid weak economic data, persistently high inflation, and low consumer demand, earning back the "Sick Man Of Europe" Title it enjoyed in the 1970s.

UK Retail Sales In Shock Fall
The UK experienced a mild economic contraction of 0.1% in Q3 2023, and the country could potentially be in recession now.

Meanwhile, big American banks are facing a bill of billions to top up the FDIC Deposit Insurance fund, which Silicon Valley Bank, Signature Bank, and other tapped last year.

Bitcoin Sets The Stage

Bitcoin has corrected from its $49,000 high and is moving out of oversold territory. The weekly RSI is now around 64, down from its December high of 83. Looking at it one way (in terms of weekly candles), this consolidation has now lasted six weeks. From the intra-week high, of course, it has only been 11 days. These moves typically last from 30-90 days.

We'll also take our now-regular look at ETF flows, since these are driving so much of the narrative, and providing significant buy pressure (albeit at the margins). Grayscale continues to hemorrhage coins at a rate of 10-15,000 BTC per day, but this is consistently being offset (and more) by the other nine.

Those nine have taken almost 100,000 BTC off the market. Demand is exceptional, though it's still relatively small in the general context of a day's trading volume, hence it hasn't impact price to the upside (yet). At the time of writing, bitcoin has dropped below $41,000 but has still not broken down below its prior lows, just above $40k.

TL;DR this is still nothing more than a natural—and so-far mild—correction off an obvious resistance level following many weeks of strong price action and heavily overbought conditions. In another month or two, if not before, the odds are in favor of a continuation. And it could be a doozy (NFA).

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