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.