Tense calm for cryptocurrencies; the market awaits Powell and the Fed

As has become the norm in recent months, investors are fully on the lookout for what the Federal Reserve (Fed) Chairman Jerome Powell will say to the markets this afternoon, on Wednesday. The crux of the matter once again lies in the difference in positions between the market and the central bank: investors believe that the lackluster earnings season will cause the Fed to hold back on rate hikes after a final raise of 25 basis points, while Federal Open Market Committee (FOMC) officials insist that the terminal rate will be above. Some analysts, in fact, believe it could exceed 6%.

"It is this disconnect between the Fed’s rhetoric and what the market is pricing which makes today’s FOMC rate decision and Powell press conference very much a “live” meeting. How does Powell square how the Fed sees the path of future rate rises and the markets belief that the central bank will start cutting rates again before the year is out," questioned Michael Hewson, chief market analyst at CMC Markets in the UK.

The expert stressed that the danger for the Fed lies in "allowing the market to continue to think that rates are likely to come down this year, which in turn could see inflation take off again, especially with the labour market being as tight as it is. Powell simply can’t afford for financial conditions to loosen and for the inflation genie to get out of the bottle again."

This is a thesis widely advocated by numerous analysts, such as Ipek Ozkardeskaya of Swissquote Bank, who believes Powell will nip expectations of any rate cuts this year in the bud. "A hawkish accompanying statement could boost the US dollar, and weigh on equities," the expert noted. This could be negative for Bitcoin, given its apparent link to equity markets of late, and confirm market fears that the rebound seen in January is not sustainable.

Ozkardeskaya also commented that employment data due this week will show "sufficient" readings for the Fed to conclude that the labor market remains "too tight" to ease monetary policy.

By technical analysis, Bolsamania analyst Cesar Nuez believes that, despite the rally, we are still far from seeing an improvement in Bitcoin's technical figure. "We should wait for the overcoming of the $25,270 resistance. This would be a demonstration of strength that would make us think of an extension of gains to the $29,150 level, the highs of the bearish gap left in June last year," he pointed out.

Nuez stressed that, despite these "good feelings, we must not forget that its trend is strongly bearish and that, as of today, it offers high levels of shady buying, which could lead to profit-taking". "It is important to see how it is and how far the short-term correction falls to gauge the strength of the cryptocurrency," he sentenced.

As for Ethereum, the Bolsamania analyst stated that it managed to rise above the 200-session average. "It has been moving in a sideways band just below the resistance of $1,670 for a few weeks. Everything seems to indicate that it could end up surpassing these prices, which would make us think of an extension of the gains up to the $2,035 level. Its performance at these prices is key. If it manages to overcome them, it is very likely that we could end up confirming a change in trend," he concluded.

In other market news, there have been rises of 2.6% for Cardano (ADA) and losses of 1.5% for Dogecoin (DOGE) and Shiba Inu (SHIB).