Following the biggest drop in more than two years, US stocks are rebounding as investors still believe the Fed will pivot before they risk sending the economy into a severe recession. ​ Recession risks are obviously going up now that the Fed will likely need to take rates above 4.00%, but it is still unlikely we will see them take rates to the 5.00% level. ​ Today’s PPI numbers show that underlying trends are improving and that should lead to optimism that we will continue to see prices come down over the next few months. ​ The Core PPI readings surprised to the upside just like CPI did yesterday.

Cryptos under pressure

The latest inflation report ruined a compelling argument for the crypto winter to be over. ​ It seems that financial markets will need to brace for potentially much more aggressive action by central banks and that should spell trouble for all risky assets, including cryptos.

Bitcoin’s November to June crash ($68,991 to $17,599) was shortly followed by a stabilization period that now might get tested. Wall Street was very confident that the end of the Fed rate hiking cycle would happen in December with the rates peaking out at 4.00%, but now that has all changed. ​ Traders should not be surprised if the Fed isn’t done hiking until the February meeting and for rates to rise to 4.50% at a minimum.

Bitcoin’s best case scenario was for the Fed’s soft landing to happen and now that seems less likely as the risk of recession is growing. A broader slowdown is hitting Wall Street and that should keep bitcoin grounded and stuck in this crypto winter.

Ethereum’s Merge should be a pivotal moment for the cryptoverse and its current weakness is more likely reflecting investor expectations that we will see a classic ‘sell the event’ reaction once the Merge is done. ​ Ethereum’s update was embraced by hedge funds and the recent weakness is likely profit-taking. ​ While the Merge is a big technological change that addresses the energy consumption problem, most people won’t really benefit from it until much later.

Ethereum will likely continue to chip away at bitcoin’s lead as the top crypto, but chances of a flippening will have to wait a couple more years. ​

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Senior Market Analyst, The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.