Table of Contents
After it had looked like a price recovery on the crypto market at the beginning of the week, the interest rate decision by the US Federal Reserve in the middle of the week caused a significant increase in trading volatility, as expected. Another adjustment of the key interest rate by 75 basis points to 3.25 percent caused the next sell-off on the traditional market. The US Dollar Index (DXY) then continued to climb north, marking a fresh high for the year at 113.22. By the end of the week, the major US stock indices had slipped around 5 percentage points southwards to their lows from June 2022. Most cryptocurrencies, especially ETH (ETH), followed this sell-off and also tended to be significantly weaker.
The relatively manageable drop in the price of the key crypto currency BTC (BTC) is a small ray of hope. The BTC price also fell back significantly to 18,153 US dollars in an initial reaction, but was able to hold its own well in the following days and formed the opposite to the Dow Jones Index (DOW30) no new low for the year. The fact that the crypto sector, as a high-risk investment, was able to pull itself out of the affair relatively well together with the US technology index Nasdaq is remarkable in this situation. Investors may again see BTC as a store of value. However, this trend has yet to be confirmed in the coming weeks. In the following overview article you can find out how the crypto prices could react to the upcoming inflation figures this week and which dates in the current trading week should also be relevant.
ECB boss Lagarde and Fed boss Powell with new statements at the start of the week
Tomorrow, Tuesday, September 27, Ms. Lagarde, the eurozone’s most important currency guardian, and her colleague, Fed Chair Jerome Powell, will each appear in front of the cameras at 1:30 p.m. (CET) to give their latest assessments of the current one separately economic and monetary policy situation. Observers will scrutinize each sentence from Fed Chairmen to identify possible signs of a shift in EU and US interest rate policy. If the top currency watchdogs confirm the planned monetary policy measures to curb escalating inflation and possibly discuss additional steps by their central banks, this could again have a negative impact on the stock and crypto market.
At 2:30 p.m. (CET), the Census Bureau in the USA will then publish the latest incoming orders for durable goods. These incoming orders reflect the demand for industrial goods for the past month of August. Market observers expect a decline of 0.5 percentage points. Orders for durable goods had already fallen by 0.1 percent in the previous month. However, when durable goods orders come in higher than forecast, it tends to be bullish for the US dollar (USD). On the other hand, if incoming orders fall more than expected, the US dollar exchange rate is likely to fall in the short term. A weaker US dollar was recently positive for the price development of BTC and Co.
Updated data on CB consumer confidence and new home sales
Fresh data on consumer confidence in the US will follow later this afternoon at 4:00 p.m. (CET). The consumer confidence measured by the Conference Board reflects consumers’ optimism about economic development in the USA. The forecast for the month of September is 104.0, just above the published value of 103.2 for the previous month of August. In July, consumer confidence was 95.3. If consumer confidence continues to rise as in the previous month, that would be a first indication of an improvement in the economic situation in the USA and would give Fed Chairman Powell more leeway for future decisions. On the other hand, if analysts’ expectations are missed and consumer confidence falls back towards the 100 threshold or even below, this would confirm the tendency of an ongoing economic downturn in the US. The US Federal Reserve will therefore monitor the development of CB consumer confidence closely.
Also at 4:00 p.m. (CET) the Conference Board will present sales figures for newly built houses. The data, released monthly, is used to assess the propensity to consume among US citizens. Higher than forecast sales figures indicate an improvement in the recently declining consumer behavior in the USA. However, if house sales should be weaker than the 500 thousand single-family houses expected by the experts, this would indicate a deterioration in consumer spending. In the previous month, the number of houses sold was 511 thousand. Home sales serve as a gauge of the state of the important real estate market in the US. Should demand on the housing market continue to weaken, the central bank might have to adjust its current monetary policy in order to prevent a collapse of the real estate sector, as last seen in 2008. If, contrary to expectations, the situation on the housing market improves, the Fed would have more leeway for the planned rate hikes.
Pending house sales and further central bank speeches in the middle of the week
On Wednesday, September 28th at 16:00 (CET) follow the current sales figures for existing homes in the USA. Pending home sales describe the monthly sales of existing homes in the United States. Analysts are expecting a stabilization for the month of August, with the number of house sales declining less than expected. At -1.0 percent, the decline in July was already lower than the reduction of -4.0 percent assumed by economists.
With existing home sales representing around 90 percent of the US housing market, this metric is an important component in assessing US consumer spending. If the sales figures for existing homes in August turn out better than expected, this could indicate an initial stabilization in the recently weak housing market. However, this could result in continued dollar strength.
US Gross Domestic Product for the second quarter on Thursday
Fresh U.S. gross domestic product (GDP) figures for the second quarter of 2022 will follow on Thursday, September 29 at 2:30 p.m. (CET) from the Bureau of Economic Analysis. Gross domestic product (GDP) is considered by economists to be the most important economic indicator. It describes the sum of the goods and services produced in a country minus the preliminary services rendered. Based on the GDP data, market experts can draw conclusions about the current economic strength of the USA. As in August, the experts are forecasting a decline of -0.6 percentage points. Should US GDP improve slightly and stabilize compared to the previous month, this would be an indication for the Fed that the US economy is showing increasing resilience despite rising interest rates. Further interest rate adjustments would be more likely in the future. A significantly weaker gross domestic product, on the other hand, should have a negative impact on the strength of the dollar and ideally boost the crypto market.
Consumer Price Index (CPI) in Europe and Core PCE in the US to close the week
At the end of the week on Friday 30 September at 11:00 a.m. (CET), market participants will initially focus on the release of the consumer price index (CPI) for the euro area for the month of September. After the inflation rate of 9.1 percent was above the expectation of 8.9 percent, the experts are now anticipating an average inflation rate of 9.6 percent. A stronger-than-expected increase in the rate of inflation makes it likely that the ECB will raise interest rates again in October. However, if the consumer price index turns out to be lower than forecast, a bullish initial reaction on the crypto market is conceivable. The pressure on the ECB to implement further drastic interest rate hikes in 2022 would thus ease somewhat.
Finally, at 2:30 p.m. (CET), the PCE core rate of consumer spending by private households for the past month of August is published. It describes the change in the price of services and goods compared to the previous month. The PCE core rate excludes possible price changes for energy and food in the calculation. In the previous month, PCE inflation was 0.1 percent mom, below the forecast of 0.3 percent. This represents the weakest increase in the last 12 months. The Federal Reserve uses the PCE price index as an important benchmark for assessing the price pressure on citizens. If the PCE index for the current month turns out to be higher than expected, this would be rated bearish. The Fed would have to continue to consistently pursue its targeted interest rate policy in order to combat inflation. At the same time, the US dollar should continue to gain strength, which has had a negative impact on the prices of BTC and Co. in recent months.