In this third Market Outlook here at Ostium Research, we'll be taking a look at the important week ahead in markets, focusing specifically on price-action, positioning and event risk for Bitcoin, Ethereum, Gold, the Dollar Index & concluding with an overview of the altcoin market via OTHERS.
Firstly, let's take a look at the calendar:
This is the big one. The Federal Reserve will begin its rate cutting cycle this week, but markets are uncertain about the nature of the first rate cut and the subsequent signalling. We have Retail Sales before that (important for growth fears) on Tuesday, followed by the FOMC meeting, followed by the Bank of England meeting on Thursday and concluding with the Bank of Japan meeting on Friday:
TUESDAY: US RETAIL SALES (CONSENSUS: 0.2% MoM VS PREVIOUS 1% MoM)
WEDNESDAY: FOMC INTEREST RATE DECISION (CONSENSUS: 5% VS PREVIOUS 5.5%)
THURSDAY: BANK OF ENGLAND INTEREST RATE DECISION (CONSENSUS: 5% VS PREVIOUS 5%)
FRIDAY: BANK OF JAPAN INTEREST RATE DECISION (CONSENSUS: 0.25% VS PREVIOUS 0.25%)
Now, let's dig into asset-specific price-action for the week ahead, looking firstly at Bitcoin:
Bitcoin:
Price: $58,882
Thoughts: Firstly, let's take a look at these two higher timeframe charts published below, highlighting the weekly and daily view for BTC, before looking at a couple of hourly charts with potential setups, plus an overview of market positioning.
Weekly:
If we begin by looking at BTC/USD on the weekly timeframe, we can see that despite the push lower into $53.6k support the prior week, bulls managed to hold firm, rallying off the weekly open back above $58.6k to close the week marginally above the September open at $59.1k. Despite this, we remain in a very choppy area -we have a higher-low formation but remain capped now for 189 days by trendline resistance with lower-highs. Clearing $65.5k on the weekly remains the cleanest signal for a sustainable trend shift.
Given the significance of this week from a macro perspective, we expect lower timeframe price-action to be very choppy indeed. That being said, if the weekly is able to hold above last week's lows and cement another close above the monthly open at $59k, that would be indicative of a turning tide, with a clearer path to that $65k retest ahead, likely leading to some strength going into Q4. If, however, we begin to reject post-FOMC on Wednesday and $59k begins to act as resistance again, it is likely last week's low gets swept, where the reaction will be key for the short-term trajectory of price: close the weekly below $53.6k and $49k is getting filled in, with a trendline retest on the cards; sweep $53.6k but reverse into the weekly close and hold above it, and we have likely trapped shorts that will provide fuel for another push higher back above that monthly open.
Daily:
Turning now to the daily view, we can see the strong breakout beyond local trendline resistance after bouncing off the 360-day moving average, which was followed by $56.6k acting as support once again last week. Subsequently, price continued to find a bid, pushing through the September open at $59k into $61k before retracing back into that monthly open over the weekend. We are now chopping right around that level, and if the week is to be particularly bullish we should see $56.6k now act as support once again. One thing that is less promising for bulls is that instead of derisking into the FOMC meeting we have been rallying for a week: there are still a couple of trading days ahead to see that derisking occur, but if instead we push higher earlier this week and take out the weekend highs, we would expect some sort of sell-the-news to follow short-term.
If we take out $56.6k going into FOMC and Powell is able to assuage fears around growth and labour market weakness whilst signalling significant easing of financial conditions (including potentially ending QT earlier than anticipated), this would be a great setup for strength in risk going into the weekly and quarterly close (aside from some expected window dressing). Close the daily below $56.6k and turn it into resistance and last week's low becomes inevitable, however.
We have marked out these two potential scenarios below - one long and one short - where positioning going into FOMC will likely dictate the subsequent price-action, saving any meaningful deviations from expectations in the press conference. This is a particularly uncertain week, however, as odds are chopping between 25bps and 50bps on a regular basis. Our view is that 25bps + some signalling of QT drawing to its end would be 'Goldilocks' for risk going into Q4.
Above, we can see the short setup, where price chops higher and takes out the weekend highs into FOMC, then rejects and turns those weekend highs into resistance. We would then expect to see that $56.6k-$57.2k range traded at the very least going into Friday, where bulls would need to step in hard to prevent a full retrace of the rally back into $53.6k.
Conversely, if we leave the weekend highs intact, form another lower-high on Retail Sales tomorrow and then capitulate aggressively lower into Wednesday, taking out $57.2k untapped lows, we could look to play a mid-week reversal if $57.2k then acts as support post-FOMC, looking for the weekend highs to be taken out subsequently, with a daily close below $56.6k as a very tight invalidation.
Below, we can see that positioning is not particularly skewed here, as much of the latter part of this rally has been perp-driven but we do still have a solid aggregate spot premium and OI is not doing anything crazy - in fact, we've lost above 10k BTC in OI since the weekend. If we see $57k traded pre-FOMC and shorts start piling in with funding turning negative and OI ramping up, that would support our long setup above; conversely, if we trade $61k pre-FOMC and longs are getting aggressive around that level, with funding growing and OI back above weekend highs, that would fuel the mid-week short setup:
Finally, below we can see some expected liquidation level, with plenty below those untapped lows mentioned above, plus some liquidations likely above the weekend highs:
Ethereum:
Price: $2320
Thoughts: Let's begin by looking at the weekly and daily timeframes for the Dollar pair before moving onto ETH/BTC.
ETH/USD
Weekly:
If we begin by looking at the weekly for ETH/USD, we can see that the pair continues to consolidate around a significant cluster of support, above long-term trendline support, the 200-week moving average and the 2024 open at $2281. Last week saw price reject a move higher through $2512, capped by the September open, closing the week back at $2316, marginally above that 2024 open.
Our view here remains the same as last week: until we see a weekly close through this support cluster, confirming a breakdown, we expect ETH despite its weakness to be dragged higher with the rest of the market in Q4. If we do, however, see a weekly close below $2158, price would likely fall another 20% towards $1756 as the next support, but the bigger picture view would become decidedly more bearish given that the significance of this $2150-$2300 range as a historical pivot. We could even expect to see that 360wMA at the 2018 highs ~$1420 retested if $1756 then failed to find significant demand, which would very much be a level to get long if that opportunity arrives. This would likely be many weeks away even after a breakdown below $2158, however, but it is worth keeping in mind given how pivotal an area we are in. As mentioned last week, wicking below $2158 to invite breakdown shorts and liquidate longs and then immediately reclaiming that level would be very bullish and would likely mark a mid-term bottom.
Daily:
If we turn now to the daily, the trajectory marked out in the first Market Outlook as the bullish scenario (should this support cluster hold) continues to playing out, with price retesting trendline support and the yearly open today and bouncing. If we close below $2281 and turn it into resistance this week, that would invalidate the anticipated trajectory and we would no doubt be taking out the lows into $2158, where as mentioned above we would either need to see a wick that traps short or a clean breakdown to assess subsequent price-action. If we do hold above the yearly open this week going into next week, the trendline that has capped prices most of summer will likely be broken, with any reclaim of the September open at $2512 confirming a sustained reversal. Important week ahead for ETH.
ETH/BTC
Weekly:
Beginning with the weekly for ETH/BTC, price failed to hold above the multi-week support at that pivotal 0.0416 level and sold off into the weekly close, firmly below that level into 0.0392, where it currently sits. The woes continue for ETH holders as we now have continuation of the downtrend when it appeared there was some seller exhaustion, and the next major level of support is still several percent lower at 0.0365. Now, if this was a deviation to bait a final round of capitulation, this week should see 0.0416 reclaimed as support, with the subsequent week and the quarterly close then seeing some strength and momentum off that reclaim. If, however, this is a valid breakdown, 0.0416 will act as resistance, capping any intra-week rally and leading to fresh lows going into next week towards 0.0365.
Daily:
Looking now at the daily view, we can see the bullish divergence was invalidated as price broke below 0.0402, with that level likely to now act as support turned resistance like the other recent levels from which price has broken down. There really is no bullish way to spin this most recent breakdown except what was mentioned above: if this is bait for capitulation, we should see a pretty sharp reversal off this area, reclaiming 0.0416 as support; if not, 0.0365 it is.
Nothing else to add for now, and no reason to be flipping full bull on ETH anytime soon - when we get the signal, it will likely be as clear as day.
Subscribe to Ostium Labs
Receive the latest updates directly to your inbox
Your subscription could not be saved. Please try again.
Your subscription has been successful.
Gold:
Price: $2587
Thoughts:
Weekly:
Beginning with the weekly timeframe for Gold, it continues to show immense strength, with last week finally breaking the multi-week consolidation below $2534 and rallying off the weekly open at $2486 through to fresh all-time highs, with the week closing up near $2578. We are now once again in price discovery mode for Gold, with the pair giving few opportunities for dip buyers to get involved and with the pace of the rally continuing to steepen, as must occur in parabolas.
On this timeframe, whilst we do have the possibility that momentum divergence could form, we have yet to form it and validate it - and as mentioned last week we should expect that in strong trending environments these divergences would be invalidated. RSI pushed to new weekly highs last week despite remaining below the levels seen earlier this year, but we should now expect another push higher given there is no price resistance here for Gold. With that being said, there is one large caveat this week, which is that FOMC meeting. Naturally, if we see some Dollar strength post-FOMC going into the weekly close, there is a chance that this recent breakout gets faded and we close back below prior all-time highs at $2534. If, instead, it holds above that level, there really is no resistance on the weekly timeframe all the way into $3000.
Daily:
Looking now at the daily, we can see that price broke cleanly through that multi-week consolidation between resistance turned support at $2486 and all-time highs at $2534, closing above the level and continuing higher. Fib extensions of the current trend would point towards the $2643 level as the next local resistance should this move be sustained post-FOMC, where we could then expect some further consolidation to occur.
If we see Gold faded post-FOMC and we do close back below $2534, we would then expect that scenario marked out last week play out, where price takes out the bottom of the range through $2466, retesting and potentially deviating below trendline support before making the real next leg higher through $2600, which would be a clear buy the dip scenario. Absolutely would not be looking at shorts given the poor risk/reward with so much support having built up below, at least not in the near-term for anything beyond an intra-week timeframe.
Dollar Index:
DXY
Price: 100.26
Thoughts:
Weekly:
If we begin with the weekly view for the Dollar index, we have marked out the beginning of the last rate cutting cycle in August 2019, after which the dollar largely chopped around for a few months before ultimately trending lower post-Covid volatility. We had been grinding higher in the immediate period prior to the cutting cycle beginning, which stands in contrast to the current context, whereby the Dollar has been in a multi-month downtrend within this much broader range and is now sat at support. The last few weeks of price-action saw the dollar bounce and be faded into the 200wMA, around which it is currently sat.
As such, there is a non-zero chance that we see some mean reversion in the post-FOMC period before continuation of the trend.
103.8 is the line in the sand for dollar bears, above which things would get significantly less supportive for risk, so if we do see the next couple of weeks trade up into that area we should see a strong rejection if this trend is to continue lower through the 2023 lows. If we look at the prior cutting cycle, we did grind higher for several weeks before starting to move lower (before Covid volatility stepped in), and we would see something similar occur here.
If, however, Powell et al. come out even more dovish than anticipated, and we close the weekly below 100, we could see some further downside going into October before any short-term respite for Dollar bulls, likely arriving pre-election before continuation lower through the bottom of the multi-year range.
Unless we get a weekly close above 103.8, no reason to be bullish on the dollar for more than a few weeks.
Daily:
Looking at the daily, one possible path for the Dollar would be to catch a bid this week given the multi-month downtrend, take out the 2024 open back into 102, baiting longs above the trendline before rejecting in early Q4 back to fresh lows, through 99 towards 97.5 at year-end. Alternatively, if we do close below 100 this week and stretch towards 99 going into quarterly close, we could see a more protracted bounce and short squeeze in the first couple of weeks of October before capitulation lower going into year-end.
Either way, structurally this does not look supportive for the dollar in the mid-term and any bounces going into November should be faded. whilst 103.8 is capping price.
OTHERS:
MarketCap: $192.6bn / 3.27mn BTC
Thoughts:
OTHERS/USD
Weekly:
Beginning with the weekly for OTHERS/USD, we can see that the altcoin market continued to show some strength last week, confirming a higher swing-low above resistance turned support at $169bn, rallying off the weekly open into the 200wMA at $193bn, around which it closed out the week. We still remain capped by trendline resistance from March, keeping a lid on the rallies with lower-highs, and until that trend shifts it is likely price-action remains quite choppy. Nonetheless, this is more constructive price-action than has been seen on alts for some time, and as long as $169bn does not give way as support, we can expect continuation higher into a trendline retest from here in the next few weeks. If we do lose that support, the downtrend persists and we also break the parabola, opening up another significant leg lower towards that 360wMA and prior support between $117bn-$130bn.
Whilst it does continue to hold, we do have that higher-low formation from which we need to see a higher-high - this would turn the multi-month bearish structure bullish, with any weekly close through $237bn marking out a very clear signal for a sustained reversal and continuation of the parabola towards fresh yearly highs going into historically favourable seasonality.
Daily:
Looking at the daily, we have momentum looking decidedly more promising that it has in recent months as price held above $170bn as support, but that cluster of resistance overhead between $217bn-$237bn is what we're really waiting for to confirm this view. If we hold above $170bn this week, we could expect another push higher from the altcoin market going into early October, where retesting multi-month trendline resistance and the 360-day moving average as resistance would be the first major test of strength. Turn that cluster into support and it is unlikely that $237bn provides much by way of additional resistance and we would expect continuation towards $254bn, where the 200dMA currently sits.
Obviously, it goes without saying that any loss of $170bn as support, with that level turning resistance, would be the signal for much lower prices to come, with the wick fill into $150bn being the bare minimum we should expect subsequently.
As mentioned last week, if you are currently awaiting greater confirmation before taking on altcoin risk, just wait for the $217bn-237bn cluster to be turned into support, as beyond that there is little technical resistance that animal spirits will not overcome back towards the yearly highs.
OTHERS/BTC
Weekly:
Looking at OTHERS/BTC on the weekly timeframe, we can see that the altcoin market vs BTC continues to chop around above support, having marginally closed beyond multi-month trendline resistance but showing no momentum just yet to suggests a sustained reversal. The weekly would need to close firmly through the pre-halving April low at 3.6mn BTC to really begin to look constructive, above which we could expect the top of the range towards 5mn BTC and beyond to be retested as resistance. Unless we close the weekly below that 3mn BTC support, it remains more favourable risk/reward to expect altcoin outperformance ahead.
In fact, if we look at the last rate cutting cycle, the week of the FOMC meeting in August 2019 was the penultimate week before a bottom was formed and a year-long period of altcoin outperformance began, continuing even through the March 2020 Covid volatility all the way into October 2020 before the next major correction occurred. Prior to that August 2019 rate cut, altcoins had been underperforming for months vs BTC, much like they have this year. Again, we need to see 3.6mn BTC reclaimed as support before this view really begins to pick up steam, but right now we are cautiously bullish on altcoin outperformance going into Q4.
Daily:
Finally, looking at the daily timeframe, we can see that bullish market structure has formed on this timeframe, with a higher-high that wicked above the trendline and a subsequent higher-low above the August lows. Since, the altcoin market has rallied back above trendline resistance, closing through it and above what may be reclaimed support here around 3.27mn BTC. Right now, we remain in a choppy range, but with market structure now bullish we could see another higher-low form above the trendline that leads to a retest of 3.6mn BTC in the next couple of weeks, where we would need to see acceptance above that level for continued outperformance of alts vs BTC. If, however, this is a lower-high being marked out here and we close back below the trendline, it is very likely that the August lows into 3mn BTC get retested once again, where the reaction will be pivotal for the mid-term performance of alts.
And that draws this third Market Outlook to its conclusion.
We hope we've provided some actionable value here – good luck with the trading week ahead!
