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11 min readSep 21, 2022

Welcome to Expert Insights, a weekly analysis of all the major market moves, news and opportunities that will shape the week ahead.

This newsletter and the statements contained herein are the mere opinions of industry professionals, to which other equally qualified industry professionals may disagree and should not be relied upon as financial advice and do not necessarily represent the views of Freeway. You should always do your own research and seek independent expert financial advice.

Dear #FreewayFam,

All eyes are on the FOMC Meeting. How will it affect markets? Will they be bearish or bullish, at least in the short term? Will the world suffer due to the lack of liquidity in USD? Read these experts’ views and insights for this week.

Agent Alpha

The USD liquidity crisis and the Plaza Accord

Plaza Accord Mark 2 as USD liquidity crisis risk builds

For regular Alpha readers, big inflection points mentioned in the past have now been rendered obsolete. I refer to the 10-year U.S. nominal yield which broke the > 3.5% handle this week and therefore negates the longer-term head & shoulders pattern, I refer to the S&P global proxy index that ‘technically speaking’ has closed below its support of 3870 (despite valiant attempts on Friday and Monday not to), and I refer to the DXY ($ index) that does trade higher now — just — to its YTD and multi-year high of 110.7.

Summed up, therefore, we can now look at markets facing new technical framing contexts, in other words — that is on the proviso we’re sticking rigidly to the rules of technicals — , BUT I am going to stick my neck out here and say that I still have a feeling that the broad brushed patterns I have highlighted still hold true. Namely, the inverted head & shoulders pattern on the S&P which in the next 3–6 months says 5k+, that fixed income yields will pull lower, and that the USD is topping out.

Taking the DXY Index from a technical perspective, I highlight negative divergence (higher high with lower RSI, aka buyer exhaustion) and I highlight this because the inexorable rise in the USD, off FED hawkish policy, is now rapidly building a global backdrop of a USD liquidity crisis. What do I mean by that? Think of it as a giant sucking sound of USDs coming out of the system. USDs that so many emerging markets rely on as their debt is massively denominated in it.

So what we’re staring at — in my view — is a very real building probability of a Plaza Accord Mark 2 policy response from the world’s major central bankers.

I hear you ask, what was Plaza Accord Mark 1? It was back in 1985 when the central bankers from the G7 (U.S., U.K., West Germany, France, Japan, Canada) stepped in with coordinated policy to ease the rate of the USD lest global calamity in financial markets take hold.

The ‘chatter’ building out there is for a Plaza Mark 2 (not me just making this up) and as an aside, I would note how chatter in Korea is this week of a FED swap line being agreed with the Central Bank of Korea to try and support the Korean Republic won (₩), which is in freefall.

Elaborating

Yesterday, the BIS (Bank International Settlements), the Bank for Global Central Banks published a report that highlighted how a model of theirs was increasingly suggestive of a forthcoming crisis (for want of a better way of putting it) focusing on a $ liquidity crisis, and how this report comes off the back of the Bank of America analysis earlier this month that highlights how declining liquidity in the U.S. Treasury market potentially poses a more significant threat than the housing bubble that led to the global financial crisis 14 years ago. (Source: BBG)

And, in the real world, what is happening in real time? An example yesterday of Emerging Market stress is that the Ghanaians have started talks to restructure the debt of $19Bn as they are facing effective national bankruptcy trying to service USD-denominated debt in a freefalling local currency.

Are we looking at a coordinated central bank move in the near term?

You can see the DXY, historically speaking, below: the Plaza Accord back in 1985 was at a far higher level of USD absolute pricing. However, today, the relative DEBT burden is massively higher than back in ’85.

OK, so that’s a backdrop as to what I think is bubbling away amongst authorities as they grapple with this FED and the accompanying inexorable surge in the buck. And my opening message, therefore, is “keep this policy coordination action in mind” — because, should this happen? The $ will fall, the risk in markets will catch a bid and fixed income yields will come in lower.

Now, to the immediacy of the here and now:

It is FED Day and statistically speaking — at least in recent times — markets rallied post FED days, except for the May meeting.

Should we ‘hang investment hats’ in the past? No, as it is no predictor of the future, but considering the sheer universal bearishness out ‘there’; and considering — despite this bearishness and seemingly deluge of bad news per se (in the last week FEDEX, GM and FORD have all warned for example at the company level) — risk still clings to support (ish) (3870 on that S&P). So, perhaps this pattern of upside post FOMC events should be paused for thought into today’s FOMC.

You’ll be reading today’s Alpha piece after the event.

So, I am going to frame this FOMC event as an event that comes on the back of an FOMC committee who has collectively now moved the terminal rate to c. 4.5% for the FED FUND RATE (aka the level at which they’ll stop hiking vs. 2.5% top of the current band right now) and therefore I once again pose the obvious question, can this level of HAWKISH bar be out-hawked any more? Can the FED do anything now to surprise the market even more with their hawkishness?

I keep admittedly thinking every time over the last year or so, the FED had maxed out their hawkishness only to be proved wrong time and again, but this time? Throw enough mud springs to mind, at least in the immediacy.

I am going to leave it there regarding FED for today and how you’ll be reading this post-event. And I am going to therefore leave you with this RATE HIKE vs. RATE CUT spread chart that the market is currently pricing.

What you’re looking at is how, since the surprisingly higher U.S. CPI print back last week, the FED hiking (terminal rate) has surged to 4.5% (red line) BUT, at the same time, the subsequent FED rate CUTS priced in ’23 has also surged to -1.4%. In other words, in ’23, the FED will get to 4.5% vs. 2.5% right now to only slash back to 3% by the end of the year/early ’24, and the reason they’ll be doing so regarding slashing is, of course, because they MASSIVELY overcooked things; freaking out on the way up and then freaking out on the way back down again.

No one out there amongst the ‘big boy’ strategists gives this much credence, taking the FED at their word that they’ll hike and MAINTAIN rates at the terminal rate level for quite a while.

As ever I say: ‘yeah… let’s see’

Until next time,

Alpha

Crypto Quant

Watching the world burn

I forecasted the market correctly as bearish, but now I’m seeing the destruction as the world burns.

When you forecast the market correctly over time, it can be scary and people hate you. Especially when it’s bearish.

BTC and related metrics on Technicals: I’ll list each one with a simple indication of up (⬆️) /down (⬇️)/sideways (⬅️➡️). Extra macro significance gets 2 arrows.

Total:

⬆️:0

⬇️:14

⬅️➡️:0

Verdict: This is not the market where up is the word, beyond a 2-hour short-term play. I anticipate the market is very likely to define new lows very soon. I’m now engaging bear swings on basically everything, which I can sleep on for a month or two.

Analysis below:

⬇️ Spy continues to walk down.

⬇️ Crypto fear and greed is returning to the 20s (23 now), so naturally people are shaken, and rightly so.

⬇️ Daily moving averages are 100% bearish, and we’re under 20k again.

⬇️ Ichimoku is bearish on daily/weekly/monthly and hasn’t changed.

⬇️ Quadruple witching past, we’re into huge significant events. JPOW rate hikes coming could break any trends, but likely down.

⬇️ Monthly and 3-month indicators are very bearish.

⬇️The 3-day SPY chart is extremely bearish.

⬇️4h metrics almost turned around before a hard rejection under 23k

⬇️ Bitcoin dominance is now rising, and we’re following a classic plan to raise it, which is maximum bearish.

⬇️ Liquidations are more aggressive towards longs. This is a change. This means longs are fueling drops.

⬇️ Futures Funding data still shows bearish/short control.

DXY doesn’t change, despite people forecasting otherwise. CNYUSD moves down and EURUSD is back under $1. GBPUSD continues to walk towards GBP–USD parity. CADUSD joins the swan dive à la CNY. Rates not only went up but will continue to do so and now debates are simply “how much?” ⬇️

Yield inversion continues, QT is still ongoing and rates are more aggressively hiked as CPI supports the narrative and PPI potentially as well. The market looks very 1973-ish or possibly 1980s-ish. ⬇️⬇️

Total2 (above) has now broken a trend to the downside after doing a Bart. This may get really ugly quickly here, as we find out just how low is low for the market.

BTC dominance (BTC.D) — BTC.D is starting to turn. JPOW tomorrow could be the catalyst or some other legal action.

DeFi outlook: DeFi — DeFi is not looking like it’s going to grow. Possibly ever, given the fundamental liquidity crisis and basically servicing to fund North Korea.

Trader outlook: Be ready for all directions due to JPOW. I’m going to try to call all possibilities but we have many.

Notable events outlook:

FOMC is 9/21, as is Vix expiration. We are likely to drop after that, by definition.

Crypto: Institutions are walking from Crypto or at least tossing FUD. A politician decides to add phrases like blockchain to unrelated speeches all the time. I’m all for blockchain tech in the right places, but it’s not a magic bullet solution to all things. There’s also speculation as to what’s going on with FTX trying to acquire Voyager as well. Ian Balina sued for promoting ICOs. Another crypto influencer is facing legal issues for a Ponzi.

Globally:

War: Russia prepares for another free and fair election to officially annex Ukrainian land. Also known as “vote the way we tell you, or we’ll vote for you”. Russia’s money manager again attempts to walk away — which could be significant. Putin skips a speech entirely and says maybe later (??).

China’s finances look to be in serious trouble in some important areas and surviving in others. Macro looks bad, as do their loans to other countries. Collapse is implied and possibly expected. They also back Kazakhstan again, which is a step away from backing Russia. Kazakhstan likewise is not happy with Russia.

Azerbaijan has been fighting with Armenia. It’s getting very serious.

The EU is losing patience with Hungary.

U.S.: The U.S. very clearly declares they will defend Taiwan, but Biden has been known to talk strongly that he later walks back at times.

Prior Opportunity follow-up: YFI, LIT, SOL. Entirely depends on how they were handled. First YFI looked like a long bounce, now we’re in short-land. LIT if shorted early, would be beautiful (58c). SOL is around $31, so any short done anywhere should be in good shape by now.

New Opportunities:

I’m going to target some weird stuff. OP, BAT, XMR. Why? Because they’re basically not moving pre-FOMC, so all we need to know is where they’re about to go. So I’d wait till after the 1% rate hike or 0.75% (my bet is on 1).

OP:($.9186): OP is creeping down a daily descending wedge(macro) but also a short-term bear flag. This is going to be really, really ugly. OP, since it hit $2, has just been dying off and is now hovering below the $1 range. What I see is a short anywhere from 92–94c (96c stop), and to expect a drop to at least 85 if not 72c or more. Bye, OP.

BAT($0.2994): Same thing, apparently. Up to about 30,31c, a short can be good — down to new bottoms, possibly under 25c and below. The worst case could knock off a digit. On the upside, if they break above 31–32c, they could see 35 or even 37c.

XMR($142.21): Crypto, why do you hate your people? Holy smokes! XMR is in a really, really bearish ascending wedge. I don’t see that ending in any way other than ugly. So… up to maybe $146 I can easily see a short, and down to $127 or below would be a good first stop. In fact, in the signals I run, XMR actually is showing a sell signal on the daily today. That’s how bad it is.

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Until next time,

Sadie Hutton

Co-Founder and CEO

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