Analytics report
Oct - Nov 2022

In recent years economists and financial market participants attach more importance to US monetary policy, inflation and actions of the Federal Reserve, leaving out what is actually happening on the markets.

What contributes to such a change of focus, and what is the Federal Reserve System itself?

In recent years economists and financial market participants attach more importance to US monetary policy, inflation and actions of the Federal Reserve, leaving out what is actually happening on the markets.

What contributes to such a change of focus, and what is the Federal Reserve System itself?

The Federal Reserve System (FRS, the Fed) is a supreme order authority, which has a variety of different functions. Those include maintenance of balance between commercial banks’ interests and national ones, regulation and control of banking institutions, protection of users’ credit rights, ensuring stability of the financial system and economy in general, and many others.

CPI consumer price index

A typical reaction for such high rates of indexes and inflation was - just like in a study book - transition from gradual interest rates cuts back to their increase from March 2022. Increasing interest rates would make it more difficult to get a loan for both businesses and consumers, helping markets in handling the overpowered liquidity stream, which has been neglected for more than 10 years.

United States’ interest rates on loans

Such a radical change of monetary policy at an accelerated pace is quite rare, and Wall Street reacted accordingly - by dumping the biggest trading tech companies and indexes deep in bear markets. Cryptocurrencies market, being high-risk, suffered much more than others.

Therefore, change of speed for increasing interest rates and rhetorics of FRS representatives are two most popular topics to discuss among all market players in 2022. This is fair to a cryptocurrency market as well, since investors are convinced that it is FRS executives who set the trend.

This month key macroeconomic events for US - and therefore for worldwide - markets was annual inflation rate (reported monthly, september) and annual core inflation rate (reported monthly, september).

General Inflation has decreased insignificantly, while Core Inflation rate has significantly increased. Key indexes SPX 500, NASDAQ and Dow Jones has lost some % of their capitalization sharply after publication of reports, however they won back the fall to the end of trading session, marking one of the most profitable days in their trading history. It was at this moment that a local rally started in October.

From this we can conclude that investors understand all the complexity and possible length of the course for fighting inflation, however they believe that the market was too negative in the moment, and short-term growth is possible.

Two impulses are clearly visible on the graph for this month: first impulse with a long down shadow happened as a market reaction for the economy data report on October 13, and second being a local rally at the closing of the month.

Bulls in October finally managed to breakthrough and gain a foothold above two important trend lines, however upward movement was not accompanied by a high trading volume. It indicates a possibility of a false movement.

Lateral movement continues for 150 days straight, indicating supply and demand balance, which happens during uncertainty at the market. Sooner or later there will be an exit out of this consolidation, and you better not stand in the way of a new impulse movement.

Next logical levels of support on the downward movement are $16k and $12k per Bitcoin. For the upward movement there will be a powerful resistance around $21k and 25k$.

Current market phase is characterized by experienced investors as a time of despair and depression caused by sheer drop of all-beloved assets.

In September Fear & Greed Index did not change dramatically and is still indicating a high level of Fear.