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Fresh Fed Rate Hike Expectations

A resurgence in hawkish Fed expectations for the June meeting and beyond has fuelled a sharp rally in USD over the last week. On the back of last week’s FOMC minutes, market pricing for a further hike in June has jumped to above 60%. This marks a significant shift in sentiment given that pricing was sitting below the 10% level around the middle of the month. The shift comes on the back of a slew of hawkish Fed commentary recently, some stronger-than-forecast data, and last week’s FOMC minutes which revealed a hawkish slant to discussions. Additionally, progress within the US debt ceiling negotiations looks to also be supporting the prospect of a further hike.
 

US Debt Ceiling Negotiations

The two sides reportedly have an agreement in principle which will now need to be passed through both Congress in order to be confirmed.  While such a deal will avoid a historic US debt default, there have been concerns raised over the level of debt the US government will have. Nonetheless, with stocks set to rise on a deal, the ground is laid for the Fed to hike rates further as a means of helping curb any inflationary response which might materialize.  Gold prices have come under heavy selling pressure as a result of the uptick in USD and look poised for further losses should USD gains continue across the week.
 

Technical Views

XAUUSD

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The sell-off in gold prices has seen the market falling sharply from the highs around 2069.41. Price is now testing the bull channel lows having broken beneath support at the 1973.51 level. With momentum studies bearish, the focus is on a break lower with 1871.04 the next big support if we do slide from here. 
 

Big Bitcoin Moves

We’re seeing plenty of volatility in Bitcoin at the start of the new week. The leading digital asset was seen gapping higher at the open today, hitting its highest levels since the start of the month before reversing under fresh selling pressure. Price is currently holding above the 27415 level, keeping the focus on the further upside while above there. News of a likely deal on the US debt ceiling fuelled a surge of demand for crypto with risk assets set to benefit sharply from an historic debt default being avoided.
 

US Regulatory Crackdown 

However, at the same time, warnings over the US administration’s regulatory crackdown on crypto are dampening bullish sentiment. Earlier this week we heard Elon Musk, who was once largely responsible for driving an explosion of demand for crypto, warning that, against the current backdrop, he wouldn’t advise anyone to buy crypto currently. We’ve also heard Republican candidate Ron DeSantis warning that the Biden government is going after Bitcoin and could end up “killing it” completely.
 

Fed Impact 

One further element to monitor is the shift in Fed sentiment which might also act as a hurdle for BTC bulls. With the Fed now widely pegged to hike rates against next month, along with reduced expectations of rate cuts later this year, a further rally in USD might hold BTC back near-term.
 

Technical Views

BTC

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The correction lower in Bitcoin has stalled around the 26000 level with the market subsequently bouncing and breaking back above the 27415 level. Price is now trading back up into the contracting triangle pattern and with momentum studies pushing higher, the focus is on a continuation to the upside while price holds above the 27415 level.

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