It seems as
if the situation is getting worse with every passing week. Last week Federal
Reserve’s (Fed) Chairman Jerome Powell admitted to a possible recession but
expressed strong commitment to take control of inflation. So, the Fed will
certainly continue aggressive interest rates hikes if the U.S. economy continues
to grow while maintaining high inflation. This would eventually lead to a
contraction of national GDP. Goldman Sachs warned that investors are underestimating
the possibility of a recession in the near future.
What is
interesting to see in the current situation is that central bankers across the
globe are resisting the idea of national currencies devaluation to improve
exports. That is very understandable as international settlements are conducted
mostly in the U.S. Dollars, the currency which is at its highest level in the
last 20 years. Such a disposition leads to elevated import expenditures and has
a negative impact on national economies. The International Bank of Settlements is
nudging central bankers to favor inflation control over economic developments
as it is convinced that uncontrolled prices would damage economies much worth
than some economic troubles. In the worst- case scenario, the inflation spiral
of the 1970-s may be repeated.
Real
interest rates are still negative despite recent monetary tightening moves by
central banks. And that leaves quite a large space for further interest rate
hikes. Considering such expectations investors would favor U.S. Treasuries and dump
risky assets. Moreover, there are fears mounting up over a possible collapse of
the U.S. real estate market that may follow stocks and crypto assets. Real
estate related industries deliver 18% of national GDP in the United States. Any
significant troubles in this sector may vortex other assets into a downturn.
More than 8% of Americans have overdue rentals. Mortgage rates for 30 years
rose to 6.4% while the initial payment grew by 105%. This left the number of
claims for mortgage approval at the lowest they have been since 2005. The average prices on real estate
soared by 40%.
Crypto
currencies are among the riskiest assets and are largely affected by these
economic developments and will continue to react to every sneeze of the stock
market. The technical picture for come crypto coins suggest a setup formation
for short positions. Solana has a clear ascending wedge that may indicate a
possible drop to the lows at $28 per coin. The Ethereum token has charted a triangle
after a rebound from $885. Such technical patterns suggest further continuation
of the downward trend. A breakthrough out of this triangle on June 24 confirmed
a weakness of the rebound.
Bitcoin
prices have left the triangle pattern looking downwards. A current disposition
leaves BTC no choice other than to dive deeper. The level of $20,000 per coin
looks strong now but is unlikely to support prices. The next likely stop for Bitcoin
prices is seen at $15,000.