(Kitco News) – Investors embraced risk-on sentiment in early trading on Friday as stocks and cryptos were in the green while gold bulls worked to climb out of the red and get back on track with their push for new highs.
The pan-market rally comes as U.S. bond yields and the DXY extended their pullbacks, helping to reignite risk appetite. The morning saw the benchmark 10-year yield (TNX) slide to a low of 4.18%, down from a three-month high of 4.25% hit earlier in the week. Traders should exercise caution, however, as the TNX has climbed back above 4.2% at the time of writing.
“Overall, in the absence of a significant rally, the US majors are on course to post losses this week. But that doesn’t mean that the rally is over,” noted David Morrison, Senior Market Analyst at Trade Nation. “Equities should find support if bond yields continue to pull back from recent highs, while the VIX has also drifted a touch lower, which is also supportive.”
“Next week sees five of the ‘Magnificent Seven’ report earnings with Apple, Microsoft, Meta, Apple and Amazon all on tap, rounded off with Non-Farms at the end of next week,” he added. “This could prove a big test for the markets while also being a driver of sentiment as we head towards year-end.”
Data provided by TradingView shows that after a close of the Thursday daily candle at $68,155, Bitcoin's (BTC) price pulled back to a low of $67,225 overnight. Bulls have since re-engaged, lifting BTC back above $68,400, with their sights still set on overcoming resistance at $70,000.
BTC/USD Chart by TradingView
Bitcoin's return above $68,000 comes as market watchers widely expect a 25 bps interest rate cut from the Fed at their November FOMC meeting. The CME FedWatch Tool now puts the odds of such a cut at 96%, up from 90% last week.
Insights gleaned from the Fed’s Beige Book also suggest that another 25 bps cut will come in December as the central bank works to stimulate the economy, which has gone into maintenance mode ahead of the U.S. elections.
Another bullish factor pushing prices higher is China’s $140 billion fiscal stimulus package that is expected to help propel cryptos higher as, despite the ban, Chinese investors still hold significant influence in the crypto market.
“Bitcoin and other assets with inflationary hedge status remain the biggest beneficiaries of a Federal Reserve rate cut,” said Agne Linge, a board member and head of growth at WeFi. “Depending on where Bitcoin will be when the next rate cut is announced, a positive boost for it is imminent.”
“Since the Federal Reserve pivoted to cutting interest rates, Bitcoin has recorded fluctuations but has retained a floor price around the $60,000 level,” she noted. “This shows strength for the coin, from which it can pick up more ambitious rallies when monetary policies are favorable.”
“Before now, projections that the FOMC would cut the rate by 25 basis points were mere speculation. However, with the Beige Book report, there is a higher certainty that a rate cut will come in November and December,” Linge said. “The Beige Book hinted that the economy is largely in maintenance mode and not necessarily expanding. Twelve regional banks confirmed this outlook, implying that the Feds must step in and provide incentives through rate reduction to boost the economy.”
She suggested that “This incentive will see more cash freed up due to lowered borrowing costs. This might reduce the purchasing power of the US Dollar in the long term, a situation that calls for an alternative currency to hedge the fallout. Alongside the traditional inflation hedges, Bitcoin and crypto generally appreciate in value in relation to the US Dollar. This presents these assets as a viable option for investors.”
One thing to be cognizant of is “that since the Federal Reserve has already started cutting rates, future rate cuts are already priced in by the market,” Linge highlighted. “Everyone is waiting for the elections, and even though there might be a 0.1% chance of a destabilizing event in the United States, investors are hedging their positions to protect their portfolios from potential USD devaluation.”
“In addition to the US economic outlook, the market needs to monitor China's actions and assess how this might affect the crypto ecosystem,” she added. “China is conducting fiscal stimulus, with over $140 billion worth of liquidity provided to the markets and incentives for institutions to invest in the stock markets. Chinese investors are big players in the cryptocurrency ecosystem, and the continuous stimulus might have a visible boost.”
And regarding the recent gains seen across markets, Linge noted that “The forecast of a weakening US Dollar is already playing out with the visible stall in the dollar index. If this stall translates to a reversal, it will signal to investors that they need their capital moved to proper, trusted hedges.”
“With institutional investors monitoring these macroeconomic trends, the rate cut and DXY outlook might offer the right incentive to expand their adoption of spot Bitcoin ETF products,” she concluded. “In all, there is high upside potential for Bitcoin to chart a very promising growth course before the end of the year.”
At the time of writing, Bitcoin trades at $68,362, an increase of 0.95% on the 24-hour chart.
