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In this episode of the “Fed Watch” podcast, we deal with vital macro charts. We cowl bitcoin’s chart, currencies just like the greenback, the euro, the Hong Kong greenback, and gold in addition to vitality commodities. We didn’t have time to get to all of the charts I ready, as a result of the stay present has time constraints. I’ll try to get a second half out this week to cowl the remainder of my commodity charts, in addition to provide chains and delivery prices. You can discover the slide deck of charts here.
Other subjects coated in in the present day’s episode embody President Joe Biden and Federal Reserve Chair Jerome Powell’s assembly yesterday, the place I strive to flesh out the significance of this Wall Street (Powell) versus globalists (Biden) showdown, and we get into a few issues from Davos final week, notably the Kissinger feedback about Ukraine.
“Fed Watch” is the macro podcast for Bitcoiners. Each episode we focus on present occasions in macro from throughout the globe with an emphasis on central banks and foreign money issues.
Currencies
The first foreign money we discuss is bitcoin. I focus on the current pop in value on Memorial Day, and the way it is simultaneous with a rising bullish divergence within the indicators.
However, I additionally return in time to roughly one 12 months in the past, when there was a really comparable scenario. In June 2021, there was a bullish divergence in these two indicators and a breakout of a descending wedge. That transfer was a faux out, minimize quick by the Grayscale (GBTC) unlock wave in July. The present scenario is comparable on the chart, however not comparable within the fundamentals. I simply needed to level out a earlier instance the place a breakout like this week failed.
I make an effort to dislodge the “bitcoin rise equals dollar collapse” false narrative right here. The greenback and bitcoin can rise collectively due to deflationary pressures pushing individuals to money and away from counterparty threat.
Next up is the greenback. On the stay stream, I present the next chart and focus on how we may very well be headed for a brand new increased vary on the greenback. Perhaps we see one other 5 to seven years of the greenback index (DXY) in a spread of 100-110, sort of like the way it jumped into the 90-100 vary in 2015.
Dollar index chart with technical evaluation (source)
For many who don’t like DXY as a result of it is too slim (euro 57.6%, yen 13.6% and pound 11.9%), I present a chart of the trade-weighted greenback that features 30-plus currencies together with the Chinese yuan and Mexican peso.
In the beneath chart, we see the identical consolidation starting, however the excessive that the greenback achieved (excluding the COVID-19 crash highs) is a brand new excessive. I feel this symbolizes a stair-step operate increased for the trade-weighted greenback as nicely.
Trade-weighted greenback with 30-plus currencies (Source)
Remember, a robust greenback is the Fed failing and it additionally offers huge stress to the remainder of the world’s economic system.
The euro is practically the inverse of the DXY. It additionally reveals a current breakout, however on this case downward. If the greenback rally is to consolidate earlier than heading increased, the euro is going to consolidate earlier than heading decrease. One factor is for positive, the euro has damaged its two-decade assist pattern line and it’s in huge bother of crashing a lot decrease.
Chart of the euro versus the U.S. greenback exhibiting a downward breakout (source)
The subsequent two charts are of the Hong Kong greenback versus the U.S. greenback. There is a peg in place that is plainly apparent on the primary chart: It is a spread between 7.75 and seven.85. Recently, the trade fee has raced to the highest of this pegged vary, signaling huge greenback strain within the Asian economies like China, Hong Kong, Taiwan, Japan and South Korea. The greenback squeeze quickly began this 12 months.
Monthly chart of the Hong Kong greenback versus the U.S. greenback (source)
The second chart of the Hong Kong greenback is a detailed up of the each day timeframe. The peg was defended efficiently this time, by the authorities promoting U.S. {dollars} and shopping for Hong Kong {dollars}, however the huge query is do they have sufficient reserves to proceed defending this peg for the remainder of the 12 months, like they did in 2018?
Daily chart of the Hong Kong greenback versus the U.S. greenback (source)
The Hong Kong authorities publish their reserve knowledge, so we are able to get a clue to the severity of their predicament. At the tip of April 2022, prior to the peg experiencing its best strain, their reserves stood at $465.7 billion, $16 billion lower than March.
The final foreign money we have a look at is partly a foreign money and partly a commodity: gold. It has been arduous being a gold bug for the final 11 years. Currently, the gold value is beneath the 2011 excessive of $1,920, sitting at $1,840 on the time of recording. Imagine, holding gold for 11 years and shedding cash regardless of the narrative of cash printing. Your selection at that time can be both abandon your defective inflation dogma or go loopy on conspiracy theories. That sums up the gold group at this level, for my part.
Gold spot value April 2021 by May 2022 (source)
Energy Commodities
Moving onto commodities, on this episode, I solely have an opportunity to cowl two charts. The first is Brent crude (U.Okay. crude value in orange) and West Texas Intermediate (WTI) crude (U.S. crude value in blue). They usually are extraordinarily correlated, with a slight premium on European Brent.
I needed to cowl this chart in the present day, due to the headlines concerning the sixth spherical of EU sanctions on Russian oil; it is an absolute joke. As you’ll be able to see on the chart, the orange line really drops on the day the theatrical sanctions had been introduced.
Brent crude and WTI crude oil costs (source)
My thesis for oil costs is as follows: Global demand is collapsing sooner than oil provide. Recent elevated costs beginning in March 2022 are due to the battle in Russia and Ukraine inflicting market uncertainty. Oil is very overbought. The value of oil will start to fall quickly, reducing costs and client value index (CPI), and coinciding with a progress slowdown. This is not a stagflation state of affairs, it is a deflationary melancholy state of affairs after a short lived spike in costs.
Natural fuel futures in Europe assist my conclusion. They have been radically elevated, far above rational market fundamentals aside from sanctions on Russia. Russia has refused to be affected by successive rounds of sanctions, and the chart is telling us that these value ranges are primarily due to individuals’s worries, not market fundamentals. Once these worries go away (when the tip of the Ukraine scenario turns into extra clear), costs will modify downward rapidly.
European pure fuel futures (source)
That does it for this week. Thanks to the readers and listeners. If you take pleasure in this content material please subscribe, assessment and share!
This is a visitor put up by Ansel Lindner. Opinions expressed are fully their personal and don’t essentially mirror these of BTC Inc. or Bitcoin Magazine.
